Archive for the 'NJ – Punitive Damages' Category

SEPTEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE CLAIM DENIAL DEBATABLE, AND NO PUNITIVE DAMAGES CLAIM POSSIBLE (District of New Jersey)

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The insureds purchased a property in 2004. Initially, the insureds did not know that the property contained an underground heating oil tank. In May of 2014, the insureds had the tank removed. During removal, a municipal inspector detected a fuel oil discharge on the property. The discharge resulted in soil and groundwater contamination, and the insureds incurred significant remediation costs.

The insureds submitted claims for the remediation under their homeowners policies, to two insurers. The insurers rejected the claim because the loss was not a sudden and accidental occurrence. Insurer I’s expert report stated that the loss was not “a result from a quick, abrupt, or catastrophic event.”

The insureds filed a coverage action against Insurers I and II, and asserted claims of bad faith. The insurers moved for summary judgment on the bad faith claims, arguing that the insureds failed to show the absence of a reasonable basis for denial of the claim. The insureds did not contest insurers’ argument that its position was debatable, and as such, the Court deemed the issue conceded. Thus, the Court granted Insurer I and II’s motion for summary judgment as to the bad faith claim.

Insurer II also moved for summary judgment as to the insureds’ claim for punitive damages. Because the standard for punitive damages “is a showing by clear and convincing evidence of some egregious circumstances or wantonly reckless or malicious conduct by the insurer[,]” an even more exacting standard than the one used for bad faith, the Court struck this claim.

Date of Decision: August 17, 2017

Benjamin v. State Farm Ins. Co., No. 15-4123, 2017 U.S. Dist. LEXIS 131078 (D. N.J. Aug. 17, 2017) (Simandle, J.)

MARCH 2016 BAD FAITH CASES: (1) BAD FAITH CLAIM FOR FAILURE TO COMMUNICATE SETTLEMENT DEMANDS WITHIN POLICY LIMITS REQUIRE SAME PROOF UNDER PENNSYLVANIA OR NEW JERSEY LAW; (2) POTENTIAL LOWER STANDARD FOR PUNITIVE DAMAGES IN PENNSYLVANIA NOT A BASIS TO DISMISS CLAIM; (3) ACTIONABLE CLAIM AGAINST AN INSURER’S MANAGING AGENT FOR CONTRIBUTION (New Jersey Federal)

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In Allegheny Plant Services v. Carolina Casualty Insurance Company, the insured was subject to personal injury tort claims. The carrier provided defense counsel, and the case went to trial.  The jury verdict exceeded policy limits by nearly $700,000.  The insured brought suit against its insurer for failing to settle and/or inform the insured that there was an opportunity to settle within policy limits.  The insurer also sued appointed defense counsel.  Defense counsel joined the insurer’s agent that was allegedly engaged to monitor and manage the defense litigation, on a theory that the agent knew the policy limits and failed to manage the litigation prudently.

Although the case was transferred to New Jersey, the insured brought a Pennsylvania statutory bad faith claim against the insurer. The insurer sought to dismiss that claim on summary judgment. The court denied that motion.  Likewise the court denied the managing agent’s motion to dismiss defense counsel’s claim for contribution.

The court applied a conflict of laws analysis on the bad faith claim. Although New Jersey’s insurance bad faith claim is based in common law (the “fairly debatable” standard), not statute, the basic standards of proof are the same:  the lack of a reasonable basis to deny benefits, and a knowing or reckless disregard of that fact in denying benefits. The court observed that Pennsylvania’s courts had rejected proof of self-interest or ill-will as a third element.

The court then addressed the potential conflict between Pennsylvania’s right to punitive damages under the Bad Faith statute, and New Jersey’s general statute on punitive damages. It found a lack of clarity in the law on when punitive damages may be allowed under Pennsylvania’s Bad Faith statute, i.e., can punitive damages be awarded solely on a finding of statutory bad faith, and is that a different, lower, standard than an award of traditional punitive damages?

The court then stated: “I find it plausible that Pennsylvania would permit, if not require, a punitive damages award based on a bad faith verdict. Such a verdict, however, would have to carry within it the factual basis for a traditional award of punitive damages. Otherwise, punitive damages would be awarded in every bad faith case; if that had been intended, I would have expected a much clearer legislative statement to that effect. At any rate, such a conflict as to punitive damages—even if it existed—would not require me to dismiss Count 3, the relief sought here.”

Without resolving this critique of Pennsylvania law, the court went on to observe that should this issue arise at trial, Pennsylvania and New Jersey law could apply to proving bad faith, as both state’s laws are identical on that issue.  And, if it came down to it at trial, the parties could again move to determine which state’s law applied to punitive damages. Thus, there was still no basis to dismiss the case under either state’s law. Further, were there a true conflict, the court concluded that Pennsylvania law would apply; which would seem to resolve the punitive damages issue, but the court appeared to leave that open up to the time of trial.

As to the managing agent’s motion to dismiss, the court observed that the key to a viable claim for contribution among joint tortfeasors  is “common liability to the plaintiff at the time the cause of action accrued.” The court found that defense counsel’s third party complaint against the alleged agent adequately set forth a claim that that the managing agent contributed to a unitary injury suffered by the insured. Factual issues concerning the ability to control the defense, and the alleged agent’s contractual relations with the insurer, among other things, could not be disposed of at the motion to dismiss stage.

Date of Decision:  March 17, 2016

Allegheny Plant Servs. v. Carolina Cas. Ins. Co., No. 14-4265, 2016 U.S. Dist. LEXIS 35189 (D.N.J. Mar. 17, 2016) (McNulty, J.)

SEPTEMBER 2015 BAD FAITH CASES: COURT (1) FINDS CLAIM FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING SUBSUMED IN COUNT FOR BAD FAITH; AND (2) DISMISSES DEMANDS FOR PUNITIVE DAMAGES AND ATTORNEY’S FEES IN FIRST PARTY BREACH OF CONTRACT/BAD FAITH CASE (New Jersey Federal)

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In Gilliam v. Liberty Mutual Fire Insurance Company, the insureds brought claims for breach of contract, breach of the covenant of good faith and fair dealing, and bad faith denial of insurance benefits after the insureds’ home suffered damage caused by Hurricane Sandy.

The insureds alleged that the insurer “improperly adjusted the claims” and “wrongfully denied at least a portion of the claim without adequate investigation.” The insureds further claim that they were underpaid for damages caused by Hurricane Sandy, and also alleged that the insurer “failed to affirm or deny coverage for their losses within a reasonable time period.”

The insurer sought to dismiss the breach of the implied covenant of good faith and fair dealing claim “on the ground that the claim is subsumed within [the insureds’] bad faith claim set forth in the third count of the complaint.”

The District Court stated that the New Jersey Supreme Court “has recognized a cause of action for, and established the applicable standard governing, an insurance company’s bad faith refusal to pay a claim pursuant to a policy of insurance.” In a case in which the insured brought an action against its insurance carrier, claiming breach of the implied covenant of good faith and fair dealing for failing to timely pay the insured’s claim, the New Jersey Supreme Court had found that the bad faith cause of action rested upon the implied covenant of good faith and fair dealing, which is “to be implied in every contract.” Thus, the present District Court decision found that any analysis relevant to the determination of the insureds’ claim for breach of the implied covenant of good faith and fair dealing would be implicitly incorporated into the bad faith cause of action, and it dismissed this claim.

The District Court next addressed whether “punitive damages may be assessed against an insurance carrier for the allegedly wrongful withholding of insurance benefits.” In making this determination, the Court pointed to New Jersey case law for the proposition that punitive damage awards are prohibited in contract actions absent a special relationship between the parties. This “special relationship” exception has been narrowed to the extent that “an insurer’s task of determining whether the insurance policy provided coverage of an accident cannot be deemed to give rise to … a [fiduciary] duty on the part of the insurer.”  Rather, “[t]he parties, in this respect, are merely dealing with one another as they would in a normal contractual situation. They are not acting as principal and agent.”

In the present case, the insureds failed to plead facts that would show such egregious, intolerable, or outrageous conduct that would be sufficient to support an award of punitive damages. Further, the case was a first party insurance claim, which “cannot support a finding of a fiduciary relationship sufficient to invoke the special relationship exception to the general rule prohibiting punitive damage awards in actions of this form.” Thus, there was no more than a breach of contract action, which lacked “in both aggravated circumstances and facts indicative of a fiduciary, or agent-principal, relationship between the parties,” and the Court dismissed the claim for punitive damages.

The Court also rejected the insureds’ claim for attorney’s fees because the matter involved a first party claim for which counsel fees may not be recovered.

Date of Decision: September 25, 2014

Gilliam v. Liberty Mut. Fire Ins. Co., CIVIL NO. 14-cv-00361, 2014 U.S. Dist. LEXIS 184510 (D.N.J. September 25, 2014) (Sheridan, J.)

This opinion is virtually identical to the decision in Torres v. Liberty Mutual Fire Insurance Company

SEPTEMBER 2015 BAD FAITH CASES: COURT (1) FINDS CLAIM FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING SUBSUMED IN COUNT FOR BAD FAITH; AND (2) DISMISSES DEMANDS FOR PUNITIVE DAMAGES AND ATTORNEY’S FEES IN FIRST PARTY BREACH OF CONTRACT/BAD FAITH CASE (New Jersey Federal)

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In Torres v. Liberty Mutual Fire Insurance Company, the insureds brought claims for breach of contract, breach of the covenant of good faith and fair dealing, and bad faith denial of insurance benefits after the insureds’ home suffered damage caused by Hurricane Sandy.

The insureds alleged that the insurer “improperly denied at least a portion of the claim without adequate investigation” and they claimed to have been “underpaid to date for the damages sustained as a result of Hurricane Sandy.” The insureds further argued that the insurer “failed to affirm or deny coverage for their losses within a reasonable time period.” The insurer moved to have the breach of the covenant of good faith and fair dealing count dismissed, along with the insureds’ demands for punitive damages and attorney’s fees.

The insurer sought to dismiss the breach of the implied covenant of good faith and fair dealing claim “on the ground that the claim is subsumed within [the insureds’] bad faith claim set forth in the third count of the complaint.”

The District Court stated that the New Jersey Supreme Court “has recognized a cause of action for, and established the applicable standard governing, an insurance company’s bad faith refusal to pay a claim pursuant to a policy of insurance.” In a case in which the insured brought an action against its insurance carrier, claiming breach of the implied covenant of good faith and fair dealing for failing to timely pay the insured’s claim, the New Jersey Supreme Court had found that the bad faith cause of action rested upon the implied covenant of good faith and fair dealing, which is “to be implied in every contract.” Thus, the present District Court decision found that any analysis relevant to the determination of the insureds’ claim for breach of the implied covenant of good faith and fair dealing would be implicitly incorporated into the bad faith cause of action, and it dismissed this claim.

The District Court next addressed whether “punitive damages may be assessed against an insurance carrier for the allegedly wrongful withholding of insurance benefits.” In making this determination, the Court pointed to New Jersey case law for the proposition that punitive damage awards are prohibited in contract actions absent a special relationship between the parties. This “special relationship” exception has been narrowed to the extent that “an insurer’s task of determining whether the insurance policy provided coverage of an accident cannot be deemed to give rise to … a [fiduciary] duty on the part of the insurer.”  Rather, “[t]he parties, in this respect, are merely dealing with one another as they would in a normal contractual situation. They are not acting as principal and agent.”

In the present case, the insureds failed to plead facts that would show such egregious, intolerable, or outrageous conduct that would be sufficient to support an award of punitive damages. Further, the case was a first party insurance claim, which “cannot support a finding of a fiduciary relationship sufficient to invoke the special relationship exception to the general rule prohibiting punitive damage awards in actions of this form.” Thus, there was no more than a breach of contract action, which lacked “in both aggravated circumstances and facts indicative of a fiduciary, or agent-principal, relationship between the parties,” and the Court dismissed the claim for punitive damages.

It also rejected the insureds’ claim for attorney’s fees because the matter involved a first party claim for which counsel fees may not be recovered.

Date of Decision: September 26, 2014

Torres v. Liberty Mut. Fire Ins. Co., CIVIL NO. 13-CV-06051, 2014 U.S. Dist. LEXIS 184534 (D.N.J. September 26, 2014) (Sheridan, J.)

MARCH 2015 BAD FAITH CASES: PLAINTIFF STATED BAD FAITH CLAIM WHEN ALLEGING THAT INSURER’S ADJUSTER ADMITTED A BASIS FOR LOSS AS TO WHICH COVERAGE WAS DUE, BUT INSURER LATER DENIED COVERAGE (New Jersey Federal)

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In Bannon v. Allstate Insurance Company, a Hurricane Sandy case, the policy provided “that coverage for dwellings or other structures did not include loss caused by ‘flood, including, but not limited to, surface water, waves, tidal water or overflow of any body of water or spray from any of these things, whether or not driven by wind.’” The insurer denied coverage.  However, in the Complaint, the insured alleged that the insurer’s adjuster had conceded that the home was destroyed by wind.  She further alleged “that other evidence, including statements from witnesses, photographic evidence, and professional opinions, support a finding that Plaintiff’s home was destroyed as a result of wind damage.” The insurer allegedly had called in an engineer to review the claim after the adjuster’s initial position.

The insured brought claims for breach of the implied duty of good faith and fair dealing, as well as breach of contract and under the Consumer Fraud Act (“CFA”).  The insured asserted that the insurer, through its “agents, servants, and employees, improperly adjusted and denied her claims, failed to properly investigate the damage, and unjustifiably refused to perform its obligations.”  The insurer moved to dismiss. The issue was whether the insurer’s position was “fairly debatable.”

The Court stated: “The question of whether the claim is ‘fairly debatable’ is, clearly, a fact-specific question. Moreover, it is not obvious from the face of the … Complaint, including the alleged facts that [the insurer’s] adjuster initially opined that the damage to Plaintiff’s home was cause by wind, and that [the insurer] sent an engineer to inspect the property after its denial of coverage, that the denial of coverage for alleged wind damages was ‘fairly debatable.’ While this claim may be subject to dismissal on a summary judgment motion, following discovery, the … Complaint states sufficient facts to permit the claim to go forward.”

The Court further followed “the Third Circuit’s lead by predicting that the New Jersey Supreme Court would find that the New Jersey CFA applies to the payment of insurance benefits.”

The Court did dismiss the punitive damages claim: “Even if Plaintiff can show that Defendant acted in bad faith, Plaintiff has not pleaded facts that rise to the level of egregiousness necessary for punitive damages in an insurance contract case. Certainly the facts as alleged do not show actual malice, or a wanton and willful disregard of persons who might be harmed.”

Finally, the court dismissed the claim for attorneys’ fees, on the basis that Rule 4:42-9(a)(6) does not apply to first party claims, an issue which has been opened for review by New Jersey’s Supreme Court.

Date of Decision:  February 24, 2015

Bannon v. Allstate Insurance Company, Civil Action No. 14-1229 (FLW)(LHG), 2015 U.S. Dist. LEXIS 21591 (D.N.J. February 24, 2015) (Wolfson, J.)

 

FEBRUARY 2015 BAD FAITH CASES: ALLEGING THAT INSURER MALICIOUSLY AUDITED AND RE-ADJUSTED PREMIUMS DID STATE A CLAIM FOR BREACH OF THE DUTY OF GOOD FAITH AND FAIR DEALING, EVEN WHERE CLAIMS HANDLING NOT INVOLVED; ATTORNEYS’ FEES NOT PERMITTED; PUNITIVE DAMAGES COULD BE PURSUED (New Jersey Federal)

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In LM Ins. Corp v. All-Ply Roofing Co. the insured alleged, among other things, that the insurer audited its premiums, and reclassified its employees, as revenge for underreporting income, and that this stated a bad faith claim.  The insurer argued there are no recognizable bad faith claims in New Jersey for audit or premium disputes, but rather bad faith claims against insurers in New Jersey are limited to claims handling issues.

The court found for the insured, and held that the insured stated a claim for breach of implied covenant of good faith and fair dealing against Plaintiff based on the insurer’s auditor re-classifying all of insured’s employees as roofers in retaliation for the insured under-reporting its payroll. The insurer had offered no binding authority that New Jersey law limits “bad faith” claims against insurers to claims handling, without affording a viable bad faith action with respect to premium disputes.

Specifically, New Jersey courts imply a duty of good faith and fair dealing in all contracts. “[W]hen a breach of the duty of good faith and fair dealing can be shown, liability may be had in tort as well as in contract under New Jersey common law. An insurer’s obligation to exercise good faith “depend[s] upon the circumstances of the particular case.” “The boundaries of ‘good faith’ will become compressed in favor of the insured depending on those circumstances” presented. “[I]n New Jersey the covenant of good faith and fair dealing is contained in all contracts and mandates 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 insured’s Counterclaim states that the insurer’s policy contracts imply that it would deal fairly with the insured and perform its obligation under the contract in good faith. It also alleged that the auditor elected to maliciously disregard the insured’s course of business and performance while exhibiting egregious and outrageous misconduct when the insured attempted to have the classification revised, by claiming every employee of the insured was classified as a “roofer.” In essence, the insured’s counterclaim stated sufficient facts to claim the insurer consciously manipulated the insured’s premium obligations so as to punish the insured for what the insurer deemed “under-reporting” of its payroll, while maximizing the insurer’s profit at the insured’s expense. This in effect injured the right of insured to receive the “fruits” of the contract, and the insureds were held to have stated a claim for breach of the implied covenant of good faith and fair dealing.

The court did dismiss the claim for statutory attorney’s fees, as inapplicable in first party cases, but did permit the punitive damages claim to go forward, as the counterclaim clearly alleged malice on the part of the insured’s auditor when he willfully, without cause and in retaliation, reclassified the insured’s employees to the highest classification.

Date of Decision:  January 23, 2015

LM Ins. Corp v. All-Ply Roofing Co., Civil Action No. 14-cv-04723, 2015 U.S. Dist. LEXIS 7621 (D.N.J. January 23, 2015) (Linares, J.)

 

DECEMBER 2012 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM BECAUSE DENIAL OF CLAIM ALONE DOES NOT AMOUNT TO LIABILITY; COURT ALSO RULES THAT ATTORNEYS FEES ARE IMPROPER WHERE DISPUTED POLICY IS A FIRST-PARTY SURETY CONTRACT OR BOND (New Jersey Federal)

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In Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., the court heard a carrier’s motion to dismiss its insured’s claim for bad faith and strike a request for attorney’s fees and punitive damages. The case arose from a coverage dispute over an “Employee or Director Dishonesty” policy purchased by the insured from the carrier.
In 2005, the insured, a credit union, began a new lending program whereby it extended its loan services to local automobile dealerships. However, the insured’s loan manager, who was in charge of approving or denying applications in conformance with the insured’s policy manual, began to obtain improper financial benefits for approving loans. As a result, the insured lost money when various loans defaulted. The insured filed a claim with the carrier, but was denied coverage. The insured subsequently filed suit against the carrier, alleging bad faith among other claims. The carrier filed the instant motion, seeking to dismiss the bad faith count.
The carrier argued that the insured’s complaint did not allege sufficient facts to support a finding of bad faith. In its complaint, the insured had alleged that the policy was meant to cover losses caused by an employee’s dishonest acts, and that in denying coverage for such an event, the carrier acted in bad faith. However, the court sided with the carrier, ruling that these allegations were insufficient to support a finding that the carrier acted with reckless indifference in denying the insured’s claim. The court did not grant leave to amend, but dismissed without prejudice, noting that the insured could amend its complaint if it later discovers facts sufficient to allege bad faith.
Next, the court granted the carrier’s motion to strike the insured’s request for punitive damages because the bad faith count had been dismissed and punitive damages are unavailable for the underlying contract claims.
Lastly, the court denied the insured’s request for attorney’s fees. Specifically, it reasoned that this request should be stricken because the policy at issue was a surety bond, not a liability and indemnity policy. Under New Jersey law, attorney’s fees are only permitted in cases dealing with a liability policy. According to N.J. Ct. R. 4:42-9(a)(6), a surety bond that protects an insured against a third-party is not actually a surety bond, but a liability policy. In such a case, attorney’s fees may be awarded.
However, the court held that the policy in this instance was a surety bond between the insured and its carrier. It did not protect against liability, but existed to pay the insured for acts or omissions of its employees. As such, the unambiguous language of the policy created a suretyship agreement or bond between the parties that fell outside the scope of N.J. Ct. R. 4:42-9(a)(6). Accordingly, the court granted the carrier’s motion and struck this request from the complaint.
Date of Decision: July 22, 2009
Raritan Bay Fed. Credit Union v. CUMIS Ins. Soc’y, Inc., 09-1512, 2009 U.S. Dist. LEXIS 63216, U.S. District Court for the District of New Jersey (D.N.J. July 22, 2009) (Wolfson, J.)

NOVEMBER 2012 BAD FAITH CASES: NO BAD FAITH UNDER REASONABLY DEBATABLE STANDARD OR REASONABLE MINDS STANDARD IN UM FAILURE TO SETTLE CASE (New Jersey Appellate Division)

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In Williams v. State Farm Indem. Co., the insured driver was injured. Four months after the accident, he reported to the police there was another driver that had caused the accident and fled the scene. He sought uninsured motorist coverage from his carrier. The carrier refused to settle the claim, questioning whether there was another driver at all. An arbitration panel found damages in the sum of $250,000 and attributed 50% to the insured and 50% to the phantom driver. The insured took his case to a jury, was awarded over $3,000,000, which was reduced to $1,400,000 by the judge and then molded to the $100,000 policy limit. The trial judge rejected a bad faith claim for the insurer’s original refusal to settle for the same policy limit of $100,000.
On appeal, the court observed that an insurance company owes a duty of good faith to its insured in processing a first-party claim, and that it may be liable to a policyholder for its bad faith failure to pay benefits. The court also cited N.J.S.A. 17:29B-4(9)(f), “prohibiting unfair insurance practices, including, ‘Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.’” The court cited the basic rule that if the claim is “fairly debatable” then bad faith cannot be established; which cannot be established if the claimant is not entitled to summary judgment on the claim as a matter of law; and “the insurer must have no valid reason to deny benefits or delay processing of the claim, and must have known or recklessly disregarded the fact that no reasonable basis existed for denying the claim.”
However, the court then looked to its earlier decision in In Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 451, 951 A.2d 1041 (App. Div. 2008), another phantom driver case that did not settle in the UM context, with a refusal to settle at policy limits and a subsequent multi-million dollar award. That court expressed its reservation as to whether the fairly debatable/summary judgment standard “should apply when evaluating good faith in failing to settle an unliquidated bodily injury claim, as opposed to an undisputed property damage claim….” The Taddei Court “suggested that the question should not simply be whether the claim is ‘fairly debatable,’ but rather, “’whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.’”
In the case at hand, the insured met neither standard. There was a material issue as to the existence of the phantom driver which defeated the fairly debatable standard. And under the “standard contemplated by the Taddei court, that is, whether there is sufficient evidence from which reasonable minds could conclude that [the insurer] acted unreasonably in the investigation, evaluation and processing of plaintiff’s claim, plaintiff cannot establish a bad faith claim.” There was a police report and accident reconstruction report that provided sufficient evidence for the insurer not to have paid the policy limits; thus its rejection of plaintiff’s settlement offers was not unreasonable.
The court further rejected the claim for punitive damages under Rova Farms Resort, Inc. v. Investors Insurance Company, 65 N.J. 474, 323 A.2d 495 (1974), because that was a third-party bad faith case, not a first-party claim as is the instant case. Rova Farms and its progeny do not apply in the UM context, where “the insured is the claimant and, therefore, not exposed to an award in excess of the policy limits.”
Date of Decision: January 20, 2009
Williams v. State Farm Indem. Co., DOCKET NO. A-4460-06T1, 2009 N.J. Super. Unpub. LEXIS 326 (App. Div. Jan. 20, 2009) (Winkelstein, Fuentes, Gilroy JJ.)

NOVEMBER 2012 BAD FAITH CASES: COURT REJECTS BAD FAITH CLAIM WHERE FACTUAL ISSUES ARE “HOTLY CONTESTED”, GRANTS SUMMARY JUDGMENT ON PUNITIVE DAMAGES WHERE NO EGREGIOUS CONDUCT; AND DENIES ATTORNEYS’ FEES CLAIM UNDER RULE ONLY APPLICABLE TO THIRD PARTY CLAIMS, NOT DIRECT CLAIMS AGAINST INSURERS (New Jersey Federal)

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In Laverde v. Sirius American Insurance Company, there was a fire at the insured’s business and it made a claim for business personal property loss and lost income under a businessowner’s policy. The policy had a coverage limit of $150,000 for the property loss (which the claim exceeded) and covered lost net income. The carrier recognized that the property claim exceeded the personal property limit of $150,000 but asserted that the income claim was fraudulently inflated, that obviated its obligation to pay for either claim – even the uncontested property claim.
The policy provided: “This policy is void if, either before or after a loss or occurrence or claim, any insured misrepresents or knowingly conceals any material fact or circumstance, commits fraud, or swears falsely relating to any aspect of this insurance (including the information we relied upon in issuing this contract). However, if we specifically choose not to declare this policy void, we do not provide insurance thereto, or for the benefit of, any such insureds.”
The court described the dispute over the accuracy of the lost income claim as “hotly contested” and involving serious questions of material facts.
The court recognized the duty of good faith in first party insurance claims, and stated that the insured must show the absence of a reasonable basis for denying the benefits of the policy to establish a breach of that duty. Using the “fairly debatable” standard, “a claimant who could not have established as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” Under that standard, the carrier prevailed and it was granted summary judgment on the bad faith claim, as the carrier “clearly established at least a reasonable basis for denying the claim.” The court observed that the insured’s “failure to prevail on his own substantive summary judgment motion is fatal to his bad-faith claim for damages.”
The court further observed that under the circumstances, the insured could not establish the egregious circumstances necessary to gain punitive damages and summary judgment was granted on that issue as well.
Lastly, the Court addressed the summary judgment motion on the insured’s request for counsel fees. It observed that under New Jersey Court Rule 4:42-9(a)(6), a party could obtain counsel fees “in an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.” However, New Jersey’s courts had “consistently limited this rule to a situation in which an insurer refuses to indemnify or defend its insured’s third-party liability to another entity or person.” Thus, this Rule “does not authorize the allowance of a counsel fee to an insured in a direct suit brought against his insurance carrier to enforce casualty-type direct insurance,” i.e., it “did not allow for counsel fees in a direct first-party suit against an insurance carrier.” Such were the factual circumstances in this case, counsel fees were not warranted and summary judgment was granted to the carrier.
Date of Decision: August 28, 2009
Laverde v. Sirius Am. Ins. Co., NO. 08-1946, 2009 U.S. Dist. LEXIS 77 (D.N.J. 2009) (Linares, J.)