SEPTEMBER 2017 BAD FAITH CASES: NO BAD FAITH ABSENT “BAD MOTIVE OR INTENTION”; INDEPENDENT BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING CLAIM IMPROPER (District of New Jersey)

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Plaintiff acquired an Allstate annuity account from her late father’s estate in 2005, and alleged that insurer unlawfully drained funds from the account. Insurer received four separate requests to transfer funds to a savings account, and ultimately transferred funds totaling over $334,932 to that account. The plaintiff and her ex-husband jointly owned the savings account, and plaintiff alleged that her signature was forged on each request.

Plaintiff sued the insurer for breach of the covenant of good faith and fair dealing, breach of warranty, and negligent hiring and supervision, among other claims. The insurer moved to dismiss. The Court stated that “bad motive or intention” is an essential element of any claim for breach of the covenant of good faith and fair dealing. The insurer argued that the plaintiff failed to allege any facts showing bad motive or intention. The Court agreed, and held that, “[n]othing in Plaintiff’s Complaint alleges that [insurer] acted with the intention of preventing Plaintiff from receiving her expected contractual benefits.”

The insurer further argued that the plaintiff failed to allege facts justifying a claim for breach of the covenant of good faith and fair dealing independent of a breach of contract claim. Citing New Jersey case law, the insurer argued that an independent claim is only proper “(1) to allow the inclusion of additional terms and conditions not expressly set forth in the contract, but consistent with the parties’ contractual expectations; (2) to allow redress for a contracting party’s bad faith performance of an agreement, when it is a pretext for the exercise of a contractual right to terminate, even where the defendant has not breached any express term; and (3) to rectify a party’s unfair exercise of discretion regarding its contract performance.”

Because the plaintiff did not argue that any of these circumstances warranted an independent breach of the covenant of good faith and fair dealing claim, along with a breach of contract claim, the Court dismissed the claim.

The Court also dismissed the plaintiff’s breach of warranty claim, based upon N.J.S.A. § 12A:3-406, because that statute provides only a defense rather than a basis for liability. The Court further dismissed the plaintiff’s negligent hiring and supervision claim.

Date of Decision: August 18, 2017

Adams v. Allstate Life Insurance Co., No. 16-9465, 2017 U.S. Dist. LEXIS 132022 (D. N.J. Aug. 18, 2017) (Kugler, J.)

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