NO BAD FAITH POSSIBLE WHERE DISPUTE OF FACT EXISTS OVER CAUSE OF LOSS; CFA DOES NOT APPLY TO BENEFIT DENIALS (New Jersey Federal)

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The insureds wanted coverage for a fire loss. The carrier’s investigator concluded the fire was set intentionally, but the insureds offered the fire marshal’s conclusion that the fire was of undetermined origin and still under investigation. The carrier denied the claim, and the insured sued. The suit included bad faith and Consumer Fraud Act (CFA) claims, among other causes of action. The insurer successfully moved for summary judgment on the bad faith and CFA claims.

Bad Faith Claim

The court observed generally, “Under New Jersey law, an insurer owes a duty of good faith to an insured when processing first-party claims under an insurance policy. This good faith obligation is greater than that owed under a typical commercial contract because of the fiduciary obligation an insurer owes its insureds. A plaintiff seeking to recover for the bad faith conduct of an insurer is not required to prove bad motive or intention. However, a bad faith claim cannot succeed where the insurer’s conduct amounts to mere negligence.”

Further, “[t]o succeed on a claim against an insurer for the denial in bad faith of benefits under an insurance policy, the insured must demonstrate that no debatable reasons existed for the denial. A plaintiff who cannot establish as a matter of law a right to summary judgment on the issue of coverage cannot succeed on a claim for bad faith denial.”

The court granted summary judgment on the bad faith claim. It reviewed the conflicting fire reports, and found that “[b]ased on conflicting evidence in the record, it is genuinely disputed whether [the insured] caused or did not cause the fire to plaintiffs’ home. A reasonable juror could find that he intentionally set the fire. It follows that plaintiffs could not prevail on a motion for summary judgment that coverage under the policy exists.”

CFA Claim

The Court then addressed the CFA claim. “To prevail on a CFA claim, a plaintiff must establish: (1) the defendant engaged in conduct which violates the CFA; (2) the plaintiff suffered an ascertainable loss; and (3) a causal relationship exists between the unlawful conduct and the loss.” The court also granted the insurer summary judgment on this claim.

“Fraudulently selling or inducing the sale of an insurance policy is a violation of the CFA. However, ‘while the CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.’” Date of Decision: July 16, 2020

Watson v. Liberty Mutual Fire Ins. Co., U.S. District Court for the District of New Jersey CIVIL ACTION NO. 19-11994, 2020 U.S. Dist. LEXIS 125361 (D.N.J. July 16, 2020) (Bartle, J.)

 

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