NOVEMBER 2015 BAD FAITH CASES: NO FIRST PARTY BAD FAITH CLAIM POSSIBLE WHERE NO COVERAGE DUE; DAMAGE WAS EXCLUDED WHETHER CAUSED BY FLOOD WATER OR SUBSTANCES IN FLOOD WATER (New Jersey Appellate Division)

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In Riccio v. Allstate Insurance Company, the Court found that the insureds’ bad faith claims were precluded because their claim of loss was properly denied by the insurer.

The insureds originally filed a claim with the insurer after their home suffered damage from Hurricane Sandy. After the insurer rejected the claim pursuant to a “flood and flowing substance exclusion” in the policy, the insureds filed suit alleging breach of contract, breach of implied covenant of good faith and fair dealing, and breach of fiduciary duties. Specifically, the insureds argued that the property damage resulted from “substances in the water, not a flood.”

In affirming the ruling of the Law Division, the New Jersey Superior Court reasoned that the exclusionary clause in the policy, which precluded coverage for “property loss caused by or consisting of flood damage”, included “damage caused by the toxic substances carried by the flood waters and left behind after that water recedes.” The Court was unconvinced by the insureds’ argument that the terms of the policy were ambiguous, noting that the insureds contended that their damage was caused by substances contained in flood water, while the exclusion “expressly included losses caused by water or any other substances regardless of its source.”

Finally, the Court rejected the bad faith claims brought by the insureds, and noted that in order to establish a first-party bad faith claim for denial of benefits in New Jersey, an insured must show “that no debatable reasons existed for denial of the benefits.” Here, because the claim of loss was properly denied by the insurer, the Court found that the insureds were not entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim, and affirmed summary judgment in favor of the insurer.

Date of Decision:  October 22, 2015

Riccio v. Allstate Ins. Co., DOCKET NO. A-4628-13T2, 2015 N.J. Super. Unpub. LEXIS 2417 (App. Div. October 22, 2015) (Yannotti, St. John, and Guadagno, JJ.)

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