NO BAD FAITH WHERE SCOPE OF DAMAGES IS FAIRLY DEBATABLE; NO CFA CLAIMS FOR DENIAL OF INSURANCE BENEFITS (New Jersey Federal)

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This Superstorm Sandy case involved a $400,000 discrepancy in damage estimates between the insured’s and insurer’s adjustors. The court found a material issue of fact existed on these damage claims, and thus summary judgment could not be granted on a breach of insurance contract claim. (Some categories of damages were barred as resulting from water damage under an anti-concurrent cause provision in the policy).

Under New Jersey law, a bad faith plaintiff must show the insurer acted unreasonably in denying a claim, and did so knowingly or with reckless disregard. Even negligence, standing alone, cannot constitute bad faith. Under these standards, an insurer cannot act in bad faith if the claim was fairly debatable, i.e., if the insured “could not have established as a matter of law a right to summary judgment on the substantive claim [the insured] would not be entitled to assert a claim for an insurer’s bad faith refusal to pay the claim.”

As summary judgment could not be granted on the basic coverage claim, the insurer’s position remained “fairly debatable”. Thus, the insured’s bad faith claim failed, and summary judgment was granted to the insurer.

The court also granted summary judgment to the insurer on plaintiff’s Consumer Fraud Act (CFA) claim. New Jersey’s “courts are clear the CFA does not provide a remedy for failure to pay benefits….”

Date of Decision: March 18, 2019

Zero Barnegat Bay, LLC v. Lexington Insurance Co., U. S. District Court District of New Jersey Civil Action Nos: 14-cv-1716 (PGS) (DEA), 2019 U.S. Dist. LEXIS 43625 (D.N.J. Mar. 18, 2019) (Sheridan, J.)

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