Archive for the 'NJ – Procedural Issues' Category

OCTOBER 2017 BAD FAITH CASES: SEVERANCE AND STAY OF BAD FAITH CLAIM GRANTED ON ALL FOUR CRITERIA; RESOLUTION OF BREACH OF CONTRACT CLAIM DETERMINITIVE OF BAD FAITH CLAIM (New Jersey Federal)

Print Friendly

The insureds owned commercial property damaged due to storm-related incidents. They retained an outside adjusting firm. After the adjusting firm first notified the insurer of the claims, the insurer sent its own adjusters to investigate the property claims and to make a coverage decision. Upon investigation, the insurer concluded the commercial property had not been open to the public for three years, and that the insureds had apparently demolished whole portions of the building. The insurer retained legal counsel to analyze the coverage issues. It ultimately denied coverage.

The insured sued for breach of contract and bad faith. The insurer moved to sever and stay the bad faith claim. The Court stated that the practice of severing the claims “is appropriate where the claims . . . are ‘discrete and separate’ in that one claim is ‘capable of resolution despite the outcome of the other claim.” In making its determination, the Court considers four factors: “(1) whether the issues sought to be tried separately are significantly different from one another; (2) whether the separable issues require the testimony of different witnesses and different documentary proof; (3) whether the party opposing the severance will be prejudiced if it is granted; and (4) whether the party requesting severance will be prejudiced if it is not granted.”

  1. First, the Court found that the breach of contract claim concerns coverage under the policy, and that the bad faith claim deals with the insurer’s “general claims handling procedures, its claims conduct in this case, and its knowledge and state of mind about the grounds for denial of coverage.” As such, the Court held that this factor weighs in favor of bifurcation.
  2. Next, the Court ruled “the contract and bad faith claims require the testimony of different witnesses and different documentary proof.” Thus, it held that this factor also weighs in favor of bifurcation.
  3. The Court then found the insured would not suffer prejudice if the two claims are severed, reasoning that “relatively little discovery has been exchanged and it is therefore uncertain whether the initial coverage claim will be denied. If so, the bad faith claims would similarly fail.” The Court also stated that should the insureds prevail on the breach of contract claim, they could then pursue their bad faith claim.
  4. Lastly, the Court held that the insurer would be prejudiced if it were forced to litigate the bad faith claim coextensively, because permitting discovery on the bad faith claim, prior to the resolution of the breach of contract claim would be premature.

In conclusion, all four factors weighed in favor of bifurcation and the Court granted the insurer’s motion to sever and stay the bad faith claim.

Date of Decision: September 26, 2017

Legends Mgmt. Co. v. Affiliated FM Ins., No. 16-CV-1608, 2017 U.S. Dist. LEXIS 158898 (D.N.J. Sept. 26, 2017) (Mannion, J.)

It is interesting to compare this analysis with the recent Federal Rule 42 decision in Pennsylvania’s Middle District, which denied the motion to bifurcate.

OCTOBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSUREDS MERELY ALLEGED A DENIAL OF CLAIMS UNDER THE POLICY (New Jersey Federal)

Print Friendly

The insureds submitted claims under their homeowner’s insurance policy after Hurricane Irene damaged the property in August 2011, and after Hurricane Sandy damaged the property in October 2012. After the insurer initially denied coverage, the insureds filed a declaratory judgment action in state court seeking coverage under the policy. The insureds also alleged breach of contract and breach of the covenant of good faith and fair dealing, among other claims. The insurer moved to dismiss the breach of the covenant of good faith and fair dealing claim, among others.

The Court reiterated the test to establish a claim for bad faith in New Jersey. The insured must show “‘(1) the insurer lacked a “fairly debatable” reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.’” The Court held, “[the insureds] do not allege that [the insurer] knowingly or with reckless disregard denied their claim without a ‘fairly debatable reason’ for doing so.” The insureds merely alleged that they suffered property damage because of Hurricanes Irene and Sandy, and that the insurer denied these claims in breach of the covenant of good faith and fair dealing. Such conclusory allegations cannot defeat an insurer’s motion to dismiss. However, the Court gave the insureds an opportunity to amend their complaint.

Additionally, the Court dismissed the insureds’ claim for coverage as to the Hurricane Irene damage because these claims are facially untimely, and the insured failed to plead facts suggesting that equitable tolling should apply. Lastly, the Court denied the insurer’s motion to dismiss the claim for coverage of the Hurricane Sandy damage due to a factual dispute as to whether the insured’s failure to cooperate prejudiced the insurer.

Date of Decision: September 19, 2017

Kurz v. State Farm Fire & Cas. Co., No. 16-8681, 2017 U.S. Dist. LEXIS 152540 (D. N.J. Sept. 12, 2017) (Bumb, J.)

 

OCTOBER 2017 BAD FAITH CASES: COMPLAINT STATES PLAUSIBLE BAD FAITH CLAIM BASED ON CLAIMS HANDLING; COURT SEVERS AND STAYS BAD FAITH CLAIM (New Jersey Federal)

Print Friendly

The insured alleged that she suffered serious bodily injuries after a rear-end collision. The vehicle at fault only had $25,000 in available coverage, and the insured’s UIM policy contained limits of $100,000 per person and $300,000 per accident. Alleging injuries amounting to $75,000 in value, the insured filed a UIM claim with the insurer. The insured allegedly forwarded all documentation supporting her injuries to the insurer’s claims adjuster, but the insurer ignored her documentation or acted with reckless indifference to the documentation provided. She filed a claim against the insurer for breach of the implied duty of good faith and fair dealing.

The insured moved to dismiss this claim, arguing that (1) the Court lacked federal subject matter jurisdiction because the insured’s claim does not exceed $75,000; and (2) that the insured failed to state a claim upon which relief can be granted. The insured also moved to sever and stay the insured’s bad faith claim, pending the disposition of the insured’s claim for breach of contract. (1) The Court denied insurer’s motion to remand, reasoning that “[the insured’s] bad faith claim, if successful, includes the potential for an award of consequential damages and punitive damages . . .” that would exceed the jurisdictional threshold of $75,000.

(2) The Court denied the insured’s motion to dismiss, reasoning that the complaint “sets forth numerous examples of bad faith conduct that sufficiently allege[s] a ‘reckless disregard’ for [the insured’s] rights.” These allegations included delay tactics, conducting an improper investigation, and failing to evaluate medical records in a reasonable manner.

(3) Finally, the Court granted the insurer’s motion to sever and stay the bad faith claim from the insured’s breach of contract claim, citing judicial economy and avoiding prejudice to the insurer.

Date of Decision: September 12, 2017

Gussman v. Government Employees Insurance Company, No. 16-8563, 2017 U.S. Dist. LEXIS 146995 (D. N.J. Sept. 12, 2017) (Rodriguez, J.)

MAY 2017 BAD FAITH CASES: “SEVERANCE AND STAY OF BAD FAITH CLAIMS HAS BEEN CALLED THE ‘PREVAILING PRACTICE’ IN BOTH THE STATE AND FEDERAL COURTS OF NEW JERSEY” (New Jersey Federal)

Print Friendly

In addressing the common practice of severance and stay in New Jersey federal insurance cases involving breach of contract and breach of the implied covenant of good faith and faith dealing (and in this case breach of fiduciary duty as well), the court stated:

This Court has the discretionary authority to sever and stay claims, for purposes of pretrial proceedings, see Fed. R. Civ. P. 26(d)(2), or for trial, see Fed. R. Civ. P. 42(b), in the interests of justice and efficiency. I find that a severance and stay of Counts 2 [breach of the implied covenant of good faith and fair dealing] and 3 [breach of fiduciary duty] makes sense, both as logic and as case management.

If, for example, there is no coverage, then denial of a claim cannot have been in bad faith, so discovery and litigation on the bad faith issue will have been wasted. Only if coverage is found need a court explore complicated issues of the insurer’s motives and the level of certainty it was required to have before denying a claim. In short, “[p]roof an insured is entitled to coverage as a matter of law is a necessary pre-requisite to pursuing discovery regarding a bad faith claim.” ….

No surprise, then, that severance and stay of bad faith claims has been called the “prevailing practice” in both the state and federal courts of New Jersey. …. The same principle applies as to fiduciary breach claims.

Nothing about the claims here suggests that a finding of bad faith or a fiduciary breach is so likely that the Court should collapse the sequence of issues and depart from the usual, sensible practice of severance.

Date of Decision: April 25, 2017

Port Liberte Homeowners Association, Inc. v. Lexington Ins. Co., No. 16-7934, 2017 U.S. Dist. LEXIS 63394 (D.N.J. Apr. 25, 2017) (McNulty, J.)

APRIL 2017 BAD FAITH CASES: A COMPLAINT ALLEGING BAD FAITH MUST CONTAIN FACTUAL ALLEGATIONS OF KNOWING OR RECKLESS CONDUCT (New Jersey Federal)

Print Friendly

In our post earlier today, we noted a Pennsylvania Federal Court dismissing bad faith claims for conclusory pleadings, without prejudice. Below is a New Jersey Federal Court doing the same.

Plaintiffs are homeowners who purchased an insurance policy, which they alleged entitled them to coverage for property damage sustained by their home. After the Insurer denied coverage, the Plaintiffs brought suit alleging breach of contract and bad faith. The Insurer later filed a Motion to Dismiss as to the bad faith claim.

The Court granted the motion and agreed that Plaintiffs had failed to state a cognizable bad faith claim. The Court recognized that New Jersey defines bad faith as: (1) the lack of a “fairly debatable” reason for failing to pay a claim, and (2) knowing or reckless disregarded for the lack of a reasonable basis in denying the claim. The lone allegation in the Complaint as to the second element was Plaintiffs’ assertion that the Insurer had “reckless disregard for the rights of the Plaintiffs.”

The Court held that this conclusory allegation was insufficient to state a claim because it left “the Court to infer reckless indifference from the fact that Defendant denied coverage.” The Court declined to take such a leap. The Complaint lacked any allegations explaining how the Insurer acted recklessly, and the Court refused to infer bad faith conduct simply because the Insurer had denied coverage. As the Court explained, this was they very type of speculative pleading forbidden by Twombly and Iqbal. Thus, the Court dismissed the claim, without prejudice.

Date of Decision: April 3, 2017

Williams v. State Farm Fire & Cas. Ins. Co., No. 16-9028, 2017 U.S. Dist. LEXIS 50261 (D.N.J. Apr. 3, 2017) (Rodriguez, J.)

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

Print Friendly

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.)

AUGUST 2016 BAD FAITH CASES: PLAINTIFF GIVEN CHANCE TO AMEND BAD FAITH CLAIM, IF COUNSEL CAN DO SO WHILE MEETING RULE 11 STANDARDS (New Jersey Federal)

Print Friendly

In Product Source International, LLC v. Foremost Signature Insurance Co., the insured sought defense and indemnification for personal and advertising injury from a trademark infringement suit, and brought a bad faith claim. The insurer moved to dismiss. The court refused to dismiss the insured’s coverage claims, but did dismiss the bad faith claim without prejudice.

The court observed that a New Jersey bad faith plaintiff must show (1) absence of a reasonable basis to deny benefits; and (2) knowing or reckless disregard of its lack of a reasonable basis to deny that benefit. If there is a reasonable basis to deny benefits, or where coverage is “fairly debatable”, there cannot be bad faith. “Under this ‘fairly debatable’ standard, a plaintiff can only succeed on a bad faith claim against his insurer if he can establish that he would be entitled to summary judgment on the underlying claim —- that there are no factual issues over whether the plaintiff is entitled to insurance coverage under his policy.”

In its complaint, the plaintiff pleaded that there was no reasonable basis to deny defense and indemnification, referencing specific policy provisions covering trademark infringement claims. However, the court found that the plaintiff did “not adequately set forth the second element required … Defendants’ knowledge or reckless disregard for the fact that they had no reasonable basis for their denial of insurance benefits.” An allegation that the claim process was delayed with knowledge or reckless disregard that there was no valid basis is a legal conclusion, not a factual allegation under Twombly/Iqbal. Thus, the bad faith claim was dismissed without prejudice, leaving plaintiff an opportunity to re-plead; but in so ordering the court allowed the plaintiff time to cure while stating “if Plaintiff is able to do so consistent with counsel’s obligations under Rule 11….”

The plaintiff did amend, and was successful in defeating a subsequent motion to dismiss the amended bad faith claim.

Date of Decision: July 6, 2016

Prod. Source Int’l, LLC v. Foremost Signature Ins. Co., No. 15-8704, 2016 U.S. Dist. LEXIS 87030 (D.N.J. July 6, 2016) (Simandle, J.)

Open Flower

Photo by M. M. Ginsberg

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)

Print Friendly

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.)

NOVEMBER 2015 BAD FAITH CASES: COURT (1) SEVERS BAD FAITH CLAIM FROM BREACH OF CONTRACT CLAIM, AND (2) STAYS BAD FAITH CLAIM PENDING RESOLUTION OF BREACH OF CONTRACT CLAIM (New Jersey Federal)

Print Friendly

In Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mutual Insurance Company, a recent Hurricane Sandy coverage case, the Court granted the insurer’s motion to sever the insured’s bad faith claim and stay that claim pending the resolution of the insured’s breach of contract claim.

The case arose out of an alleged breach of insurance contract between the insurer and the insured for claims stemming from losses sustained during Hurricane Sandy. The insured alleged that the insurer underpaid its business loss of income claim, and filed suit alleging breach of contract and breach of the implied duty of good faith.

The Court listed the following factors to consider in determining whether severance was warranted: “(1) whether the issues sought to be tried separately are significantly different from one another, (2) whether the separable issues require the testimony of different witnesses and different documentary proof, (3) whether the party opposing the severance will be prejudiced if it is granted, and (4) whether the party requesting severance will be prejudiced if it is not granted.”

In finding that the first relevant factor weighed in favor of severance, the Court stated that the breach of contract claim concerned lost sales and the insurer’s obligation under the contract, while the bad faith claim addressed the insurer’s general claims handling procedures. Accordingly, the Court found that viewing these claims as separate and distinct actions would promote judicial economy.

Second, the two claims required testimony of different witnesses and different documentary proof. Specifically, the insured sought numerous documents not directly relevant to the contract claim, which the Court found would distract from and delay the resolution of the primary focus of the case – whether the contract claim should be paid in the amount of the claim or at all.

Third, the Court found that the insured would not be prejudiced by severance because the bad faith claim may be premature and the insured would still have the ability to pursue its bad faith claim if it prevailed on its breach of contract claim.

Finally, the Court found that the insurer would be prejudiced if the claims were not severed, reasoning that in order to litigate the bad faith claim now, the insurer would suffer by engaging in expensive and time-consuming discovery that would ultimately be rendered needless if the insurer prevails. Accordingly, the claims were severed and the bad faith issues stayed pending the adjudication of the breach of contract claim.

Date of Decision: November 2, 2015

Bridgewater Wholesalers, Inc. v. Pa. Lumbermens Mut. Ins. Co., Civil Action No. 2:14-CV-3684-SDW-SCM, 2015 U.S. Dist. LEXIS 148551 (D.N.J. November 2, 2015) (Mannion, M. J.)

 

 

OCTOBER 2015 BAD FAITH CASES: STATUTE OF LIMITATIONS DID NOT BEGIN TO RUN AT THE TIME OF THE INSURER’S ALLEGED DECLINATION LETTER, BECAUSE THE LANGUAGE IN THAT LETTER WAS AMBIGUOUS ON DENIAL (New Jersey Federal)

Print Friendly

In Liguori v. Certain Underwriters at Lloyds London, the court held that the statute of limitations had not run on the insured’s claim for breach of the implied covenant of good faith and fair dealing, because the insurer’s declination letter was ambiguous as to whether or not the claim would be covered.

Date of Decision:  July 17, 2015

Liguori v. Certain Underwriters at Lloyds London, Civil No. 14-5898, 2015 U.S. Dist. LEXIS 93090 (D.N.J. July 17, 2015) (Kugler, J.)