JULY 2015 BAD FAITH CASES: FIRST PARTY BAD FAITH PLAINTIFF FAILED TO PLEAD FACTS MEETING STANDARDS FOR A PLAUSIBLE CAUSE OF ACTION; AND INSTEAD PLEADED FACTS THAT MADE THE INSURER’S CONDUCT REASONABLY DEBATABLE, RENDERING ANY EFFORT TO ADD A BAD FAITH CLAIM FUTILE (New Jersey Federal)

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In Mitra v. Principal Ins. Co., the insured sought to amend his complaint against his disability insurer, to add a claim for breach of the implied covenant of good faith and fair dealing.  The insurer opposed on a number of grounds, including failing to plead a plausible claim and legal futility.

The insured alleged the new claim as based upon his being “diagnosed by two (2) independent qualified physicians with a legitimate illness, which rendered [him] totally disabled and completely unable to work,” undue delay in taking longer than the “pre-established 45-day waiting period to respond to [the insured’s] request for reconsideration,” and an alleged unreasonable IME being required before rendering a decision.

The court applied the first party bad faith standard found in Pickett v. Lloyd’s: “to show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.”  More “specifically, in the insurance context, a bad faith claim is premised on the insurer’s failure to investigate an insured’s claim for benefits.’” A plaintiff claiming bad faith must be able to establish “a right to summary judgment on his insurance coverage claim” to prevail on the bad faith claim.

The court found that the proposed amended complaint added no new factual allegations to take the case into the realm of bad faith; and in fact, the proposed pleading “catalogue[d] the many steps that [the insurer] took to investigate his claim.” Further, the proposed amended complaint relied upon “mere ‘labels and conclusions’ leaving numerous factual issues unresolved,” contrary to the teachings of Twombly/Iqbal.  Moreover, the proposed amendment itself “evidence[d] the many material issues of disputed fact surrounding [the insurer’s] investigation into [the insured’s] claims.” Thus, “[t]he uncertainty of the facts surrounding [the] denial of [the] claim is ‘fairly debatable,’ which would preclude summary judgment as a matter of law.” The presence of these disputed facts required dismissal, as they made the bad faith claim futile.

Date of Decision:  July 7, 2015

Mitra v. Principal Ins. Co., Civil Action No. 15-1259 (CCC), 2015 U.S. Dist. LEXIS 89532 (D.N.J. July 7, 2015) (Clark, III, U.S.M.J.)

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