Archive for the 'NJ- Reverse Bad Faith' Category

DECEMBER 2016 BAD FAITH CASES: REVERSE BAD FAITH RELIEF AND STATUTORY INSURANCE FRAUD GRANTED ON SUMMARY JUDGMENT (Philadelphia Federal)

Print Friendly

In this case, the record was uncontroverted that the insured stated in the application to his homeowner’s carrier that he did not use alternative heat sources. However, he later admitted to using kerosene heaters. The house burned down, and he made claims for coverage, which were denied. He brought suit for breach of contract.

The carrier counterclaims for breach of the duty of good faith and fair dealing, and insurance fraud under 18 Pa.C.S. § 4117. The Court granted summary judgment to the insurer on both the breach of the contractual duty of good faith and statutory insurance fraud based upon the uncontroverted evidence. It rejected an 11th hour argument that the insured was illiterate, based upon the record showing he was capable of reading.

Date of Decision: November 22, 2016

Payne v. Allstate Ins. Co., No. 11-2546, 2016 U.S. Dist. LEXIS 162376 (E.D. Pa. Nov. 22, 2016) (Schiller, J.)

NOVEMBER 2016 BAD FAITH CASES: COURT FINDS THAT (1) LOSSES QUALIFIED AS ACCIDENTAL OCCURRENCES AND WERE SUBJECT TO COVERAGE; AND (2) INSURED DID NOT ACT IN BAD FAITH IN SETTLING CLAIMS WITH CUSTOMERS WITHOUT INSURER’S CONSENT (New Jersey Superior Court Appellate Division)

Print Friendly

The insured made animal health products, and filed a complaint seeking a declaratory judgment that its insurer was required to provide coverage for economic losses suffered by three of the insured’s customers. The customers raised chickens for human consumption, and alleged that the growth of the chickens were stunted due to the chickens ingesting a drug made by the insured intended to control a common intestinal disease. The insured also alleged that the insurer had breached the implied covenant of good faith and fair dealing. Both parties moved for summary judgment.

In granting summary judgment in favor of the insurer, the trial court found that there was no coverage and that the insured waived its right to indemnification by settling customer claims without the insurer’s consent. The insured appealed.

On appeal, the Appellate Division reversed, and concluded that the losses associated with the growth-stunting effects of the insured’s product did constitute “occurrences” and “property damage” within the meaning of the provisions in the policy providing coverage. The Court reasoned that the pivotal question under the insuring clauses was whether the stunted growth of the chickens allegedly caused by the insured’s product was an “accident”, and therefore an “occurrence”. The Court found that the stunted growth was a covered occurrence, because it was not foreseeable that the additive consumed by the chickens would lead to harmful side effects.

The Appellate Division rejected the insurer’s contention that any coverage it may owe to the insured for the payments to the three customers was nullified because the insured settled with the customers without the insurer’s consent. The insurer argued that the insured did not act in good faith when it settled with one of its customers because “it did so before either the amount of damages or its liability to [the customer], if any, was even remotely clear.” However, the Court found that the insured did not act in bad faith when it settled with its customer, as two and a half months had passed after the insured submitted the claim to the insurer and had yet to receive a response. The Court reasoned that in this situation, the insured “made a reasonable business decision to settle, to ensure continued relations with an important customer and to avoid the risks and costs of litigation.”

Date of Decision: July 14, 2016

Phibro Animal Health Corp. v. Nat’l Union Fire Ins. Co., No. A-5589-13T3, 2016 N.J. Super. Unpub. LEXIS 1632 (Super. Ct. App. Div. July 14, 2016) (Accurso, O’Connor, and Sabatino, JJ.)

 

blue-horizon

Photograph by M. M. Ginsberg

AUGUST 2015 BAD FAITH CASES: POLICY RESCISSION NOT A BASIS TO AVOID PAYMENT TO INNOCENT THIRD PARTY UNDER AUTOMOBILE INSURANCE LAW WHERE INSURED SELECTS MINIMUM BODILY INJURY COVERAGE (New Jersey Supreme Court)

Print Friendly

In Citizens United Reciprocal Exchange v. Perez, New Jersey’s Supreme Court found that even where an insurer could void an auto policy for fraud, if the insured had selected the $10,000 minimum coverage for bodily injury, an innocent third party could still recover that sum from the insurer.

Under New Jersey law, “a material factual misrepresentation made in an application for insurance may justify rescission if the insurer relied upon it to determine whether or not to issue the policy.” “The right rule of law . . . is one that provides insureds with an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.”

In that case, the insurer’s application required listing all household residents of driving age. The insured failed to list a resident who later caused an auto accident.  The court was clear that had the insured identified this person as a household member of driving age, the insurer would not have issued the policy due to his poor driving record.

Still, the court did not hesitate in finding that under New Jersey’s statutory scheme governing automobile insurance and the public policy behind those statutes, the insurer could still be liable to innocent third parties.  It did limit that liability to the amount of coverage selected by the insured (the $10,000 minimum here), and further stated that it “would likewise be improper to hold the insurance carrier liable for an amount in excess of that for which it had previously contracted….”

Thus, the court held that “where an insured elects to add the basic policy’s optional $10,000 coverage for third-party bodily injury in their original contract, the insurer shall be liable to innocent third parties for the contracted $10,000 amount as the minimal amount available under our compulsory system of automobile insurance coverage, even when that basic policy is later voided. ….  [However, we] further hold that when an insured elects not to add the basic policy’s optional $10,000 coverage in their original contract, the insurer shall not be held liable to any injured, innocent third-party claimants under that contract.”

Date of Decision:  August 13, 2015

Citizens United Reciprocal Exchange v. Perez, A-67 September Term 2013, 073384, 2015 N.J. LEXIS 871 (N.J. Aug. 13, 2015)

JULY 2015 BAD FAITH CASES: INSURED SUED IN PRIVATE ACTION BY CARRIER UNDER NEW JERSEY’S INSURANCE FRAUD PROTECTION ACT MAY DEMAND A JURY TRIAL (New Jersey Supreme Court)

Print Friendly

In Allstate New Jersey Insurance Co. v. Lajara, New Jersey’s Supreme Court ruled that an insured-defendant, subject to private claims for compensatory and punitive damages under the Insurance Fraud Prevention Act, is entitled to a jury trial.

Date of Decision:

Allstate New Jersey Insurance Co. v. Lajara, September Term 2013, 073511, 2015 N.J. LEXIS 797 (July 16, 2015)

JUNE 2015 BAD FAITH CASES: NO VIOLATION OF NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT WHERE INSURER COULD NOT PROVE INDIVIDUALS’ FRAUDULENT INTENT (New Jersey Appellate Division)

Print Friendly

In Allstate Insurance Company v. Northfield Medical Center, P.C., the court found that a business partnership between a chiropractor and a doctor, that submitted claims to the insurer, was not intentionally structured to violate the Insurance Fraud Prevention Act. Thus, it overturned a nearly $4 million judgment for the insurer.

The case arose out of a partnership that a chiropractor set up in the mid-1990’s that was meant to be a multi-disciplinary practice.  An entity called “Practice Perfect,” gave lectures and sold corporate kits and documents to assist in the structuring of multi-disciplinary practices. Defendant chiropractor attended a Practice Perfect lecture given by a healthcare lawyer, in which the attorney reviewed legal issues, such as state-law prohibitions against medical doctor/chiropractor combinations, medical professional company/management company relationships, ownership and organization of the management company, and company practice prohibitions. The attorney also reviewed laws banning self-referrals and fee-splitting between a physician and limited license holder, and advised him to seek the advice of an attorney regarding the differences between state laws.

The business model would give a nonphysician investor more control of profits in a multidisciplinary practice in which only a physician could have majority stake. The investor would form a management company that would fund the medical corporation for payment of rent, equipment leases and staff salaries, and a medical practice, which would be owned by a medical doctor and repay the management company from patient fees. The Court found that attorney and creator of this model “believed that the scheme was a legitimate tool for accomplishing the goal of allowing limited license holders to increase their earnings by creating multi-disciplinary practices.”

The defendant chiropractor incorporated a multi-disciplinary medical practice, and a management company.  The insurer sued after a fraud analyst investigated the medical practice “as part of a general inquiry into illegally structured chiropractic offices which were issuing unlawful billing,” and concluded that the medical practice “should not have been billing [the insurer] under the personal injury protection statute because [the chiropractor] tried to make it appear as though a medical doctor owned [the practice] when in fact it was he who owned and controlled it.”

The appeals court reversed the trial court’s ruling and held that “[a]part from any legal definition of knowledge, the point is that [the insurer] has failed to establish, by a preponderance of the evidence, that [the appellants] showed an awareness or understanding that their aid or advice to [the chiropractor] would assist him in violating the law.” Thus, because the individuals did not have fraudulent intent, they could not be held liable under New Jersey’s Insurance Fraud Protection Act.

Date of Decision: May 4, 2015

Allstate Ins. Co. v. Northfield Medical Ctr., P.C., DOCKET NOS. A-0636-12T4, A-0964-12T4, 2015 N.J. Super. Unpub. LEXIS 1018 (App. Div. May 4, 2015) (Alvarez, Waugh, and Maven, JJ.)

DECEMBER 2014 BAD FAITH CASES: COURT AFFIRMS TRIAL COURT’S DECISION TO VOID THE POLICY, BUT REMANDS FOR TRIAL ON STATE OF MIND ISSUE FOR INSURER’S CAUSE OF ACTION UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (New Jersey Appellate Division)

Print Friendly

In Continental Casualty Co. v.  Hochschild, an insured sought coverage for damage to his boat, and the insurer claimed that no coverage was due because of misrepresentations in the insurance application.  The Appellate Division found that the policy was to be voided on the basis of equitable fraud, and affirmed the trial court’s decision to void the policy solely on that basis.

It vacated the trial court’s finding that the insured violated New Jersey’s Insurance Fraud Prevention Act (IFPA), because a trial was required to address the factual issues concerning that claim.  The appellate court was specifically concerned about the “stringent state-of-mind requirements that an insurer must prove to obtain affirmative relief under the IFPA”, and directed that the trial “shall focus on whether the insured ‘knowingly’ made false or misleading statements to the insurer, as required by” the IFPA.

Date of Decision:  November 20, 2014

Cont’l Cas. Co. v. Hochschild, DOCKET NO. A-2267-13T1, SUPERIOR COURT OF NEW JERSEY, 2014 N.J. Super. Unpub. LEXIS 2753 (App. Div. September 22, 2014) (Sabatino and Guadagno, JJ.)

 

DECEMBER 2014 BAD FAITH CASES: INSURED LIABLE UNDER NEW JERSEY’S INSURANCE FRAUD PREVENTION ACT (IFPA) (New Jersey Federal)

Print Friendly

In Federal Insurance company v. Von Windherburg-Cordeiro, the insurer had denied a disability claim.  The insured pursued the matter in a AAA arbitration, where the insurer counterclaimed for fraud.  The insurer successfully defeated the insured’s affirmative claims, and prevailed on its counterclaim, and was awarded attorney’s fees.  The arbitrator had concluded that the insured’s injuries were largely or entirely feigned.

The insurer then brought a claim in federal court for violation of the IFPA.  The court rendered judgment on the pleadings in the insurer’s favor.

Date of Decision:  November 24, 2014

Fed. Ins. Co. v. Von Windherburg-Cordeiro, Civil Action No. 12-2491 (JAP),  2014 U.S. Dist. LEXIS 163828 (D.N.J.  November 24, 2014) (Pisano, J.)

SEPTEMBER 2014 BAD FAITH CASES: INSUREDS LIABLE FOR OVER $800,000 UNDER NEW JERSEY’S INSURANCE FRAUD PROTECTION ACT; INSURER NOT REQUIRED TO RETURN PREMIUMS AS PREDICATE FOR RECOVERY IN CASE WHERE FRAUD IS ALLEGED IN MAKING A CLAIM ON THE POLICY, NOT IN PROCURING THE POLICY (New Jersey Appellate Division)

Print Friendly

In Masaitis v. Allstate New Jersey Insurance Company, the jury not only ruled that the insureds were not entitled to compensation from the insurer for a fire loss to their home, but there was a judgment awarding more than $800,000 against them under N.J.S.A. 17:33A-7(a), a provision of the Insurance Fraud Protection Act (IFPA), N.J.S.A. 17:33A-1 to -30.

The county prosecutor did not find arson, but the carrier continued to investigate the claim after it was originally made, ultimately denying it on the basis of “misrepresentation, fraud or concealment,” including specific reasons with the denial.  The carrier eventually paid mortgagees $675,000. The insured filed suit against the insurers and the mortgagees, and the insurer filed a counterclaim under the IFPA.

A jury found “that plaintiffs had knowingly misrepresented material facts concerning their claim for payments under their insurance policy, but it also found that [the insurer] had not proven that plaintiffs committed arson.”  The final judgment was for over $800,000, which also included interest, attorney’s fees, and costs per the IFPA.

On appeal, the court rejected the arguments that the trial court erred in permitting the insurer to argue arson, and that the insurer was estopped from denying the claim because it did not refund the premium.  The court found no error in the trial court’s ruling that the carrier had “produced sufficient circumstantial evidence of plaintiffs’ involvement in the cause of the fire to present a jury question.”The court did instruct the jury that the insurer bore the burden of proving arson as an affirmative defense, along with the burden to prove its counterclaims. Moreover, “the jury found insufficient proof that plaintiffs were guilty of arson. Its verdict in favor of [the insurer] was based on its finding that plaintiffs had misrepresented their losses in making their claims on personal property damaged by the fire.” The jury answered special interrogatories on this point, in finding an IFPA violation.

As to the estoppel argument, the requirement to return premiums is found in cases where the policy was obtained by fraud at its inception; whereas, in this case the insurer was alleging that a fraudulent claim was being made on the policy itself, not that the policy was procured through fraud.

Date of Decision:  August 26, 2014

Masaitis v. Allstate New Jersey Insurance Company, DOCKET NO. A-4435-12T1, SUPERIOR COURT OF NEW JERSEY (App. Div. August 26, 2014) (Ashrafi and Haas, JJ.) (Per curiam) (not approved for publication).

SEPTEMBER 2014 BAD FAITH CASES: INSURER DID NOT PROVE INSURED ENTERED SETTLEMENT IN BAD FAITH OR UNREASONABLY; INSURED DID NOT HAVE TO PROVE BAD FAITH TO RECOVER ATTORNEYS’ FEES (New Jersey Federal)

Print Friendly

In The Travelers Property Casualty Co. of America v. USA Container Co., the insured was subject to suit over a spoiled overseas delivery of corn syrup to a European buyer. The carrier declined coverage, but during settlement negotiations between the insured and plaintiff, did make a limited offer to contribute to a settlement, subject to a right of reimbursement. The insured declined, and settled. The insurer later claimed it should not have to reimburse the full settlement, in the context of its declaratory judgment action. The court found that the insurer failed to produce evidence that the settlement was entered in bad faith or was unreasonable, and thus it was liable for the full amount.

The court then analyzed the 7 factor test for determining whether the unsuccessful insurer in the declaratory judgment action was liable for attorneys’ fees under N.J. Ct. R. 4:42-9(a)(6), and observed that the insured need not establish bad faith to recover fees; rather, the presence of bad faith was only one factor to consider.

Date of Decision: July 21, 2014

Travelers Prop. Cas. Co. of Am. v. USA Container Co., Civil Action No. 09-1612 (JLL) (JAD),  2014 U.S. Dist. LEXIS 99635 (D.N.J. July 21, 2014) (Linares, J.)

 

http://docs.justia.com/cases/federal/district-courts/new-jersey/njdce/2:2009cv01612/226740/125/0.pdf?1406123619

MARCH 2014 BAD FAITH CASES: INSURED’S CONCEALMENT OF FACT THAT MANUFACTURER PAID FOR LOSS DESPITE MAKING CLAIM AND RECEIVING FUNDS FROM CARRIER COULD NOT CREATE BAD FAITH IN CARRIER, BUT DID STATE A COLORABLE CLAIM AGAINST INSURED’S UNDER FRAUD PREVENTION ACTION (New Jersey Appellate Division)

Print Friendly

In AIG Casualty Company of New York v. Walsh, AIG’s policy required it to pay for losses to a damage yacht engine, less a deductible, and it did so.  However, the manufacturer replaced the engine at no cost. The carrier sought return of the funds paid, as there was no loss, and the insureds refused on the basis that they could keep money because the amount they received from the carrier and the manufacturer did not “exceed” their loss. The court disagreed, finding that the insureds essentially received two payments for the loss.
Therefore, the insureds did not sustain any monetary loss as a result of the damage to the yacht’s engine, and the motion judge correctly determined that defendants were not entitled to retain the carrier’s payment.
The court also rejected the insured’s bad faith claim, for the insurer’s “excessively badgering” them for the return of funds.  An insurer owes its insured a duty of good faith and fair dealing in processing a first-party claim and an insured may assert a claim for breach of that duty. However, the insured must establish that the insurer did not have a reasonable basis to deny the claim. The insured also must establish that the insurer knew of or recklessly disregarded the lack of a reasonable basis for denying the claim. In this case,
the bad faith claim failed as a matter of law because the carrier had an absolute right to demand the return of the funds paid, and the insureds wrongfully refused to return the monies. Thus, whether the carrier’s demands for repayment amounted to “excessive badgering” is irrelevant because the carrier demanded the return of the monies in good faith.

However, the appellate court did reverse the trial court’s dismissal of the carrier’s fraud claim against the insureds under the Fraud Prevention Act.  A person or practitioner violates the Act if he or she “[c]onceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.]” N.J.S.A. 17:33A-4(a)(3). In addition, a person or practitioner violates the Act if he or she “knowingly assists, conspires with, or urges any person or practitioner to violate any of the provisions of this act.” N.J.S.A. 17:33A-4(b).
The carrier alleged that the insureds submitted repair estimates upon which the insurer paid the claim based, without disclosing that the manufacturer paid for the repair and replacement of the engine. The carrier also claimed that the insureds tried, by various means, to conceal the fact that they had been compensated twice for the loss, alleging that defendants did not disclose that they had received payment from the manufacturer until they filed their answer to the amended complaint.
The insureds argued that the manufacturer paid for the repair and/or replacement of the engine after the insurer paid the claim, and the policy does not specifically require them to return the monies that the insurer paid on the claim; and claimed that under the circumstances, they had a good faith basis to refuse to return the insurance payment until that issue was resolved by a court.

The appellate court found that the carrier established a prima facie case under the Act, as the record showed that the insureds were paid on their claim for repair and/or replacement of the yacht’s engine, and the manufacturer thereafter paid these costs. The insureds did not inform the carrier about this within a reasonable time, and the carrier only learned about it via its own investigation.  Thus, the facts as alleged supported a claim that the insureds acted to conceal facts material to their right to retain the insurance benefits paid to them.
Date of Decision:  February 12, 2014

AIG Cas. Co. of N.Y. v. Walsh, DOCKET NO. A-1784-12T1, SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION, 2014 N.J. Super. Unpub. LEXIS 283 (N.J. App. Div. February 12, 2014) (Per Curiam)