JANUARY 2013 BAD FAITH CASES: COURT AFFIRMS RES JUDICATA BAR TO ASSERTION OF BAD FAITH BECAUSE CLAIM ACCRUED BEFORE INSUREDS FILED INITIAL UM SUIT (New Jersey Appellate Division)

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In Wadeer v. N.J. Mfrs. Ins. Co., the insureds appealed the trial court’s decision to bar their bad faith action as res judicata under the entire controversy doctrine (“ECD”). The claim arose when the carrier refused to provide uninsured motorist (“UM”) coverage to the insureds after an automobile accident. The carrier refused to pay the policy limits, made no settlement offer and rejected two arbitration awards. The carrier also stated that the first arbitration award was so close to the policy limits that it would have nothing to lose by trying the case. Four years later, the case went to trial, yielding a $255,175 verdict for the insureds, molded to the carrier’s $100,000 policy limits. The insureds contested this result, arguing that the court erred by molding the verdict because the carrier had acted in bad faith. The Appellate Division disagreed, rejecting the insureds’ claim.

Subsequently, the insureds filed this bad faith action, alleging that the carrier’s bad faith conduct prior to trial permits them to recover damages. The trial court rejected this claim under the ECD, ruling that the bad faith action should have accompanied the insureds’ UM suit. The Appellate Division agreed, reasoning that the insured’s claim for bad faith did not accrue when the jury returned its UM verdict, but prior to the filing of that action. Records show that the insureds had threatened to file a bad faith claim prior to filing the UM suit, signaling the existence of such a claim at that time.

As such, under the ECD, the insureds were not permitted to pursue an additional action for bad faith because the claim had accrued prior to the UM trial and should have accompanied that action.

Date of Decision: December 13, 2012

Wadeer v. N.J. Mfrs. Ins. Co., NO. A-3206-10T4, 2012 N.J. Super. Unpub. LEXIS 2721, New Jersey Appellate Division (App.Div. Dec. 13, 2012) (Fisher, J. and Nugent, J.)

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