Archive for the 'NJ – Agents and Administrators' Category


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The carrier sought to void a life insurance policy on the basis of material misrepresentation. The beneficiary brought counterclaims for breach of contract and bad faith, among others.

The court rescinds based on material misrepresentation in the application

The material misrepresentation argument was based on the insured claiming $180,000 in annual income for the family business, when its annual income was actually less than $2,000.

“Under New Jersey law, an insurer may rescind a policy for equitable fraud when false statements were made in the application which ‘materially affected either the acceptance of the risk or the hazard assumed by the insurer.’ N.J.S.A. § 17B:24-3(d). Equitable fraud does not require scienter for objective questions; the only inquiry is whether the misrepresentation is material. A misrepresentation is material if it ‘naturally and reasonably influenced the judgment of the underwriter in making the contract at all, or in estimating the degree or character of the risk, or in fixing the rate of premium.’”

“In reviewing alleged misrepresentations on life insurance applications, courts distinguish between objective and subjective questions.” Objective questions are based on the applicant’s actual knowledge. “If the question is objective, even an innocent misrepresentation warrants rescission.”

“In contrast, subjective questions inquire into the applicant’s state of mind. They are concerned with more ambiguous issues, such as what is the state of the applicant’s health.” (Internal quotation marks omitted). Courts show greater leniency on the subjective question inquiry, and “consider whether the answer accurately reflects the applicant’s state of mind even if otherwise inaccurate.” “Therefore, if a question is subjective, then the insurer must additionally establish the insured knew the answer was false.”

In this case, the question involved annual income, which constitutes an objective question. While the insurer’s agent did ask for an estimate, and the insured could not provide a fixed number, this did provide an excuse for the insured’s material misrepresentation to the carrier’s agent. She could have estimated annual income at $0-2,000, rather than the $200-1000 per day estimate provided to the insurer’s agent.

Thus, the court entered summary judgment rescinding the policy.

No bad faith where coverage position is fairly debatable

The court dismissed the beneficiary’s various counterclaims. As to the bad faith claim, the insured had to prove “the absence of a reasonable basis for denying benefits of the policy and the insurer’s ‘knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.’” A “fairly debatable” claim defeats bad faith allegations. “Here, the Court has already determined the policy was void, which itself establishes the coverage was debatable.” The facts further showed that the insured was not insurable under the carrier’s underwriting guidelines.

Date of Decision: June 3, 2021

Allstate Assurance Company v. Tawil, U.S. District Court District of New Jersey No. CV 18-8843, 2021 WL 2253544 (D.N.J. June 3, 2021) (Arleo, J.)



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The district court allowed the insured to pursue claims against the insurer’s agent, even though the agent was not party to the insurance policy, where the policy was underwritten by Lloyds and effected through the agent.

The complaint alleged there was a delay in payment undisputedly due the insured after the claim was submitted. This unwarranted and unjustified delay allegedly caused the insured to suffer extra-contractual consequential damages.  The insured alleged the insurer was liable for breach of contract and bad faith in delaying payment.  The claims against the insurer itself, however, were not before the court.

Rather, the insured wanted to bring distinct claims against the insurer’s agent as a claims handler. The insured asserted the agent was independently liable for failing to timely process the claim and for failure to make undisputed payments promptly, leading to the consequential extra-contractual damages.  The insured also brought a negligence claim against the agent for failing to meet its duty of care in claims handling. The insured contended the agent’s “conduct contributed to or caused Plaintiff’s damages and therefore, [the agent] is potentially liable to Plaintiff in contract for its bad faith.”

The court permitted all of these claims to proceed.

Citing the New Jersey Supreme Court’s seminal Pickett v. Lloyds opinion, the district court found the insurer’s agent could be “liable to the insured in contract for lack of good faith and fair dealing outside of its agency relationship with Lloyd’s for its role in the claims handling delay that caused consequential damages to the policyholder.” This requires that the agent’s own conduct contributed to the delay causing consequential damages.

Under Pickett, “’agents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds.’” The district court further observed that “’although the allegation of an agent’s breach of duty of care carries tort overtones, the contractual relationship between the insured and insurer dominates not only the relationship between them, but also that between the insured and the agent.’”

As to the negligence claim, the district court looked again to Pickett, which stated that “’clearly cases may arise in which the insurance company’s conduct in response to an insured’s claim for payment constitutes an independent tort.’” Thus, the district court held the insured could state a negligence claim against the agent, in addition to the contract claim.

Date of Decision:  March 31, 2021

Microbilt Corporation v. Certain Underwriters at Lloyds, London, U.S. District Court District of New Jersey No. CV2012734FLWZNQ, 2021 WL 1214774 (D.N.J. Mar. 31, 2021) (Quraishi, M.J.)


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New Jersey District Court Judge Waldor ordered the insurer to produce its Master Services Agreement (MSA) with its third party administrator (TPA).

The insured brought a breach of contract and bad faith suit for failure to pay long-term care benefits.  The insurer and its TPA were defendants. As part of the claim handling, the TPA was delegated powers to evaluate the insured’s claim.

In discovery, the insured sought the master agreement between the insurer and the TPA, and the insurer objected to this production. The insured moved to compel production of the MSA, arguing “the MSA is relevant because [the TPA] may have a financial incentive to delay or deny benefit payments to Plaintiff[,] which Plaintiff believes supports her bad faith claim.” (Internal quotation marks omitted.)  The carrier opposed “the production of the MSA because it is a confidential and proprietary business arrangement and is irrelevant to Plaintiff’s allegations in the Complaint.”

The court required production, subject to an attorneys’ eyes only production limitation.

  1. “First, the specific terms of the MSA are relevant to the facts surrounding the handling of Plaintiff’s claim for long term care benefits by [the TPA] instead of [the insurer], the claims process and eligibility review, and Plaintiff’s appeals, all of which were delegated by [the insurer] to [the TPA] through the MSA.”

  2. “Second, the MSA is relevant … because it is the agreement that governs [the insurer’s] relationship with another Defendant in this action that effectively denied Plaintiff’s claim for benefits, which Plaintiff alleges includes terms that incentivized the denial of Plaintiff’s claims for coverage.”

  3. “Finally, the Court does not find that providing the MSA will be unnecessarily cumulative as suggested by [the insurer], the fact that Plaintiff will have an opportunity to conduct depositions of [the TPA’s and insurer’s] employees concerning the delegation of duties does not obviate [the insurer’s] duty to produce relevant information, including the MSA.”

  4. In granting the motion to compel, however, the court added “given [the insurer’s] concerns regarding the confidential and proprietary nature of the MSA, the MSA shall be produced with an Attorneys’ Eyes Only designation.”

Date of Decision: December 23, 2020

Jaffe v. The Prudential Insurance Company of America, U.S. District Court for the District of New Jersey No. 219CV18067KSHCLW, 2020 WL 7640884 (D.N.J. Dec. 23, 2020) (Waldor, J.)


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Yesterday, we summarized another case brought by the instant plaintiff against his homeowner’s insurer.

In this opinion, rendered the same day, the same plaintiff brought bad faith, negligence, and unfair trade practice claims against a hospital’s third party administrator (TPA). The hospital’s alleged medical malpractice practice purportedly resulted in the death of plaintiff’s godfather. Plaintiff brought suit in his own name, and not, e.g., as executor.

Plaintiff alleged that the TPA failed to facilitate negotiations to settle the medical malpractice suit. The trial court dismissed the claim with prejudice and the Appellate Division affirmed.

Generally, insurers have an obligation to explore settlement possibilities. A third party administrator, however, is not an insurer. Thus, the claim failed.

Further, plaintiff was not an insured or an insured’s assignee. The court observed “[a]n insurer’s duty of good faith and fair dealing . . . has never been applied in New Jersey to recognize a bad-faith claim by an individual or entity that is not the insured or an assignee of the insured’s contract rights.”

The Appellate Division found the claims could not be salvaged, and affirmed dismissal with prejudice.

Date of Decision: June 22, 2020

Yew v. Inservco Insurance Services, Superior Court of New Jersey Appellate Division DOCKET NO. A-4604-18T2, 2020 N.J. Super. Unpub. LEXIS 1202, *1 (N.J. App. Div. June 22, 2020) (Messano, Ostrer, JJ.)


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The defendant excess insurer was not notified of the claim and suit until after a jury verdict had been rendered. It denied coverage. The insured’s primary insurer paid the full verdict, and, as subrogee and assignee, brought breach of contract and bad faith claims against the excess insurer. (The complaint also brings breach of fiduciary duty claims against the insured’s broker, which are not addressed below.)

The excess insurer moved to dismiss the bad faith claim, arguing it could not be liable for bad faith because it had a reasonable basis to deny coverage. The court disagreed. It drew a distinction between adequately pleading a claim sufficient to survive a motion to dismiss, vs. adducing sufficient facts to defeat summary judgment. On a motion to dismiss, the issue is whether a “claim has been presented.” (Emphasis in original). Here, a claim had been presented in the pleadings.

The excess insurer alternatively moved to sever and stay the bad faith count. The court rejected this argument as well.

Judge Shipp ruled the bad faith claim was “not so ‘significantly different’ from the other claims … that it must be severed.” He added that the relief [the insurer] seeks—avoiding discovery into the bad faith claim—if appropriate, can be accomplished by staged discovery without severing the claim entirely.” Thus, while not severed or stayed, the insurer could raise discovery related requested to the assigned magistrate judge at the proper time.

Date of Decision: March 31, 2020

Mercury Indemnity Co. of America v. Great Northern Insurance Co., U.S. District Court District of New Jersey Civil Action No. 19-14278 (MAS) (LUG), 2020 U.S. Dist. LEXIS 56396 (D.N.J. Mar. 31, 2020) (Shipp, J.)


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The plaintiff stored its food products in the insured’s warehouse. The products were damaged and plaintiff made demand for the damages. The insured sought indemnification from its carrier, which refused coverage based on a care, custody and control exclusion.

The plaintiff sued, and the insured joined its insurer as a third party defendant seeking indemnification against plaintiff’s claims. The injured plaintiff itself also brought third party claims against the same insurer for declaratory judgment and bad faith, both for third party liability and bad faith, and for first party claims. The defendant was an additional insured under the policy. [Though not discussed below, the plaintiff also joined the insured’s agent for failing to obtain proper coverage.]

The insurer sought summary judgment on the insured’s liability claims and plaintiff’s third party claims. The insurer also sought to dismiss the plaintiff’s punitive damages claim against the insurer on the first party claims.

As to the insured’s liability claim, the court denied summary judgment based on a reasonable expectations argument that required more discovery of the facts on what the insured sought and what the carrier led the insured to believe.

As to the plaintiff’s direct third party and bad faith claims against the defendant’s insurer, the court granted summary judgment. While plaintiff was an additional insured, it was not seeking a defense or coverage for claims made against it. Rather, it was seeking to force the insurer to indemnify the insured against the plaintiff’s own claims. Under the policy, and New Jersey law, the plaintiff had no standing to bring direct indemnity claims prior to any settlement or judgment; and it had no standing to bring bad faith claims that only belonged to the insured.

The insurer did not seek summary judgment on plaintiff’s first party claims, but only sought to dismiss the punitive damages claim associated with that count.

The court framed this as follows: “Plaintiff submits that its Third Party Complaint sufficiently supports an award based on egregious and wonton willful disregard by [the insurer] because it shows that [the insurer] denied [the insured] first party coverage in contravention of the terms of the policy and insurance agent’s understanding of the policy.” [It is not clear why the plaintiff had standing to bring a first party claim on the basis that the insurer denied coverage to another party, the insured, which was also a party to the case and was well able to bring such a claim if it were viable.]

The court held that even if the insured denied the first party coverage claim in bad faith, this was insufficient to state a punitive damages claim. The court observed that New Jersey’s Supreme Court does not allow for punitive damages in wrongful refusal to pay first party claims absent egregious circumstances, and an alleged bad faith breach of the insurance contract does not by itself reach that level. “Therefore, here, even if the Third Party complaint supports the inference that [the insurer’s] denial was wrongful or in bad faith, the allegation[s] do not support Plaintiff’s conclusion that denying liability on the basis that the policy did not cover damage to property of others was egregious conduct.”

Date of Decision: March 18, 2020

Pavino v. Cold Storage, U.S. District Court District of New Jersey Civil Action No. 18-14596, 2020 U.S. Dist. LEXIS 46562 (D.N.J. Mar. 18, 2020) (Rodriguez, J.)


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In this case, New Jersey’s Appellate Division affirmed the dismissal and grant of summary judgment to the insurer on all claims, but reversed the trial court’s award of frivolous litigation sanctions against the insured because there was no finding the insured acted in bad faith in bringing the claims.

Factual Background

The insurer provided the eighth layer of excess insurance in this Superstorm Sandy case. The primary and lower layers provided $75 Million, and the eighth layer provided another $50 Million above that.

In 2012, the insured hired a contractor to do repair and restoration work. The contractor allocated $950,000 to specific building repair and restoration work. The excess carriers all determined repair and restoration work was not covered. In 2014, the insured reached a global settlement with all insurers for $93.5 Million. The eighth layer insurance contributed $16 Million. The insured executed a release for any and all claims and demands for Superstorm Sandy property damage and business income losses, discharging the eighth layer insurer.

In 2015, however, the insured asked the eighth layer insurer to reconsider paying the contractor’s repair and restoration costs, after another anticipated source for this loss did not pan out. The eighth layer carrier refused. The insured brought suit in 2015.

The Litigation

The insured alleged it relied on the advice of the excess insurers’ adjuster and experts in how the repair and restoration costs were allocated, which resulted in it obtaining no sum to settle that out-of-pocket payment. The insured alleges that it only agreed to the 2014 settlement based on this bad advice, and would otherwise have included these repair and replacement costs in its negotiations and settlement with the insured, beyond the sum actually paid.

The insured brought various claims against the adjusters and experts, and claimed the eighth layer insurance was liable for their acts and omissions on an agency theory. The insured also claimed the eighth layer insurer was liable for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and bad faith in denying the claim for the repair and restoration costs. Defendants moved to dismiss all claims, which the trial court granted in part, including the unjust enrichment claim and some of the agency theory claims. The remaining claims were later dismissed on summary judgment.

The eighth layer insurer filed a motion against the insured for frivolous litigation sanctions. The trial court granted that motion, and ruled the insurer was entitled to the attorney’s fees and costs.

The insured appealed the grant of summary judgment and the sanctions.

The Appellate Division Affirms for the Insurer on the Merits

First, the Appellate Division found no support in the record that the release was only executed as the result of fraud. The insured was well aware it was settling all Superstorm Sandy related claims, that the repair and restoration costs were not part of the settlement, and that the release would bar Superstorm Sandy related claims against all insurers. The insured was also aware that the repair and restoration costs were subject to recovery regarding another entity and its insurers, and that the settling excess insurance companies would not agree to make their settlement contingent on the outcome of that separate matter.

Next, the Appellate Division affirmed the trial court’s findings that there was no common law fraud or negligent misrepresentation by the agent or the insurer. It likewise affirmed judgment on the negligence claim on the basis that no expert testimony was proffered regarding the conduct of the independent insurance adjuster (which plaintiff was trying to bootstrap into a claim against the insurer as well).

The Appellate Division Reverses Sanctions Because there was no Finding of Bad Faith

The Appellate Division addressed the sanction award against the insured for frivolous litigation. [There were no sanctions against counsel.] The insurer’s attorneys had sent the insured’s counsel a letter stating the “complaint was frivolous because the release precluded … asserting any causes of action against [the eighth layer insurer].” The letter “also stated that [the] fraud claims were unsustainable because [the insured’s] representatives had acknowledged the [repair and restoration costs at issue] were not recoverable….” Despite this letter, the insured’s “counsel did not withdraw the complaint.”

A motion for attorneys’ fees and costs ensued. The insured and its counsel both asserted that they believed the claims had merit.

The trial judge found the claims frivolous on the basis that the insured’s claims had no reasonable basis in the law or equity, and there was no good faith argument for the extension, modification or reversal of existing law. Further, the trial judge found the insured knew that the repair and restoration costs would have to come from another source, and that the excess insurers would not make their settlement contingent on recovery of those costs from another source.

The Appellate Division reversed the frivolous litigation sanctions, finding the trial court relied upon the wrong standards. The frivolous litigation statute, N.J.S.A. 2A:15-59.1, which applies only to represented parties, requires a finding of bad faith on the plaintiff’s part. Here, there was no such finding. Thus, the claim failed.

The Appellate Division laid out these bad faith standards:

Where ‘a prevailing defendant’s allegation is based on the absence of a ‘reasonable basis in law or equity’ for the plaintiff’s claim and the plaintiff is represented by an attorney, an award cannot be sustained if the ‘plaintiff did not act in bad faith in asserting’ or pursuing the claim.” …. A finding of bad faith is essential because “clients generally rely on their attorneys ‘to evaluate the basis in law or equity of a claim or defenses,’ and ‘a client who relies in good faith on the advice of counsel cannot be found to have known that his or her claim or defense was baseless.’” …. Furthermore, under the FLS, the party seeking the imposition of sanctions “bears the burden of proving that the non-prevailing party acted in bad faith.” …. We have held that “a grant of a motion for summary judgment in favor of a [prevailing party], without more, does not support a finding that the [non-prevailing party] filed or pursued the claim in bad faith.”

The trial court did reference Rule 1:48, which only applies to attorneys and pro se parties, and thus had no application in this matter.

Date of Decision: October 4, 2019

Fedway Assocs. v. Engle Martin & Assocs., Superior Court of New Jersey Appellate Division DOCKET NO. A-0297-18T4, 2019 N.J. Super. Unpub. LEXIS 2048 (N.J. App. Div. Oct. 4, 2019) (Currier, Hoffman, Yannotti, JJ.) (Unpublished)


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In this New Jersey action, the plaintiff alleged that the insurer’s agent deceived and defrauded her into signing a release of claims against the insurer. Specifically, the insured alleged that she was injured in an auto accident, and the insurer’s agent showed up at her home with papers to sign. The agent allegedly represented the documents were necessary to process and advance payments on her claim. However, unknown to her, the documents actually included a broad release of all her claims.

Plaintiff initiated a class action under New Jersey’s Consumer Fraud Act (CFA). The District Court found the CFA inapplicable to this fact scenario, on the basis that the CFA does not address the denial of insurance benefits, and further found the CFA conflicts with the Insurance Trade Practices Act (ITPA) or Unfair Claims Settlement Practices (UCSPA) regulations under these circumstances.

The Third Circuit reversed.

The Third Circuit found that the alleged deceptive and fraudulent conduct against a consumer did not amount to the denial of an insurance benefit. It further found that there was no conflict between allowing a statutory CFA private claim to proceed, even if regulatory relief might also be proper under the ITPA or UCSPA.

Date of Decision: November 15, 2018

Alpizar-Fallas v. Favero, United States Court of Appeal for the Third Circuit, No. 17-3837 (3d Cir. Nov. 15, 2018) (Jordan, Rendell, Vanaskie, JJ.)


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In this reinsurance litigation, non-party Resolute Management, Inc. (“Resolute”) filed a motion to quash a FRCP 30(b)(6) deposition served upon it by Defendant/insured J.M. Huber Corporation. Resolute sought a protective order barring the insured from inquiring into certain subjects during the future depositions of two of its employees. Additionally, Plaintiff/insurer Continental Casualty moved for a protective order barring the insured from inquiring into certain subjects during the insurer’s 30(b)(6) deposition. The insured opposed both Resolute’s motion and the insurer’s motion.


The factual background is as follows: Between 1969 and 1994, the insurer issued policies to the insured that were subject to “incurred loss retrospective premium plans” whereby the insured’s premiums are calculated according to the total number of payments and reserves on claims submitted under the policies. The retrospective premiums are calculated annually on the 1st of December, and continue year to year until all claims submitted are closed or until the maximum premium is reached. These retrospective premiums are called “Rating Plan Adjustments.”

The insurer sued over multiple unpaid invoices from previous Rating Plan Adjustments. The insurer alleged it was owed $33,629 under a March 2012 invoice, $737,116 under a March 2013 invoice, and $978,222 under a February 2014 Rating Plan Adjustment calculation. As such, the insurer brought claims for breach of contract and unjust enrichment.

The insured then filed its answer and brought counterclaims for breach of contract and breach of the duty of good faith and fair dealing. The insured alleged that, for decades, both parties enjoyed a professional and amicable relationship where any questions the insured would have about the Rating Plan Adjustments would be satisfactorily answered by the insurer and then promptly paid.

According to the insured, this all changed in 2010 when Berkshire Hathaway and its affiliates, Resolute and National Indemnity Company (“NICO”) “entered into an agreement with [the insurer] pursuant to which [the insurer’s] legacy asbestos and environmental pollution liabilities were transferred to NICO.”

It was alleged that once NICO assumed the insurer’s liabilities, Resolute became a third-party administrator of the insured’s asbestos and environmental claims. After having questions about the particular invoices on the Rating Plan Adjustments, the insured contends that neither the insurer nor Resolute satisfactorily addressed its concerns, and the insured was never provided with an adequate explanation as to the basis of the contested premiums.


In filing the motion to quash, Resolute wanted to prevent the insured from exploring particular subjects during depositions concerning Resolute’s and the insurer’s (1) corporate practices, (2) claims handling procedures, and (3) the corporate relationships between the insurer, Resolute, NICO, and Berkshire Hathaway. The motion concerns both the Rule 30(b)(6) depositions and the depositions of particular Resolute employees.

The insurer and Resolute argued that the insured’s 30(b)(6) deposition topics were overbroad, would cause an undue burden, and would seek irrelevant information. They argued that the insured should only seek information relevant to the calculation of the retrospective premiums, and that the insured’s efforts were unreasonably duplicative because the insured seeks very similar, if not identical, information from both Resolute and the insurer.

The insured argued that all of the information was necessary for the claims and relevant. Resolute and the insurer also filed a motion for a protective order, seeking to bar the insured from inquiring into certain topics during the depositions of two particular Resolute employees. The insured took the position these employees are key witnesses.


Initially, in discussing Federal Rule of Civil Procedure 26, the Court stated that “[it] is required to limit discovery where (i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or (iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).”

The Court also addressed FRCP 45 governing subpoenas. The Court stated that four circumstances would warrant it to quash or modify a subpoena: (i) if the subpoena fails to allow a reasonable time to comply; (ii) if it requires a person to comply beyond the geographical limits specified in Rule 45(c); (iii) if it requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) if it subjects a person to an undue burden.

Failure to specify basis for objections and harm from compliance

The Court ruled that Resolute failed to (1) state its objections to the insured’s subpoena with specificity, and (2) it further failed to articulate any specific harm that could arise with its compliance. Thus, the court denied Resolute’s motion to quash. For the same reasons, the Court also denied Resolute’s motion for a protective order.

Discovery limited on some topics

Ruling in Resolute’s favor, the Court found that some of the insured’s deposition topics did exceed the scope of permissible discovery, and specifically limited such topics. These included (1) privileged information between Resolute and the insurer, (2) lawsuits against Resolute involving its administration of claims on behalf of other insurers, (3) particular document demands it found unreasonably cumulative, and (4) the insurer’s losses under other policies and Resolute’s knowledge thereof.

Discovery of corporate relationships, claims handling, and operating protocols relevant within limits

The Court further ruled that “discovery into the corporate relationships between [the insurer, Resolute, NICO, and Berkshire Hathaway], along with Resolute’s claims handling practices and operating protocols, is relevant to [the insured’s] claims and defenses in this matter.”

However, the Court went on to limit the discovery here to only relevant pieces of information, such as Resolute’s corporate structure and its affiliations.

The Court further limited the insured’s inquiries to “communications and correspondence regarding Resolute’s administration of Defendant’s claims; and Resolute’s policies, procedures and practices regarding the administration of claims on behalf of Plaintiffs involving retrospective premiums and its financial goals related to the same.”

The Court looked at a prior case involving Resolute, Pepsi-Cola Metro. Bottling Co. v. Ins. Co. of N. Am., No. CIV 10-MC-222, 2011 U.S. Dist. LEXIS 154369, 2011 WL 239655 (E.D. Pa. Jan. 25, 2011). That case also involved a bad faith claim against insurers, where the insureds “sought discovery from the insurers’ claims handler, non-party Resolute Management, Inc. by way of a 30(b)(6) subpoena. The 30(b)(6) subpoena sought information related to Resolute’s corporate relationships and structure and its operating protocols and business practices.

Resolute moved for a protective order and to quash the 30(b)(6) subpoena claiming that the information sought regarding its corporate relationships and business practices was irrelevant to the plaintiff’s claims against its insurers for bad faith.” Resolute argued “that its operating protocols and business practices were irrelevant to the plaintiff’s allegations….”

The Pepsi Court “noted that [t]o show bad faith, as opposed to mere negligence ‘a review of the policies and procedures of the companies in order to determine whether those policies instructed claims handlers to act in bad faith or provided them with an incentive structure that led to bad faith action is necessary,”

“Accordingly, in light of the plaintiff’s contention that the reinsurance relationship between the plaintiff’s insurers and Resolute and their claims handling practices may have resulted in the bad faith denial of the plaintiff’s claims, the [Pepsi] court found that the plaintiff had provided sufficient evidence of the relevance of the information sought by the subpoena and allowed the plaintiff to obtain discovery regarding Resolute’s corporate relationships and structure and its operating protocols and business practices.”

The present Court followed the Pepsi opinion, and agreed with the insureds’ position in concluding “that Defendant has demonstrated the requisite relevance of the information it seeks to its claims in this matter. In this case, Defendant claims that once Resolute became Plaintiffs’ third-party administrator, Defendant received improper and unexplained retrospective premium notices from Resolute and a letter from Resolute ‘abruptly’ denying coverage for a claim which Plaintiffs had long been providing coverage. …. Because Defendant’s bad faith claims against Plaintiffs result from conduct which arose when Resolute began handling Defendant’s claims, Defendant claims that the corporate relationships between Plaintiffs, Resolute, NICO and Berkshire Hathaway, and the corporate practices of these entities as they relate to Resolute’s claims handling practices is relevant to Defendant’s bad faith claim against Plaintiffs.”

Thus, “discovery into the corporate relationships between Resolute and Plaintiffs and Resolute as its affiliates, along with Resolute’s claims handling practices and operating protocols, is relevant to Defendant’s claims and defenses in this matter.” The Court went to limit that discovery: “However, while the Court will permit discovery into Resolute’s corporate relationships and general practices, Defendant’s requests must be narrowed to seek such information only as relevant to the claims in this matter.”

The Court found that the insurer failed to articulate the specific harm it would suffer if it complied with the insured’s subpoena, so its motion for a protective order was denied. Similarly, the Court also limited the scope of the insured’s discovery against the insurer to relevant information.

Date of Decision: December 19, 2017

Continental Casualty Co. v. J.M. Huber Corp., No. 13-4298 (CCC), 2017 U.S. Dist. LEXIS 208182 (D.N.J. Dec. 19, 2017) (Clark, III, M.J.)



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The insureds were homeowners who suffered property damage. “They were insured under a Prestige Home Premier Policy, issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds alleged they reported the claim promptly, and interacted with representatives of the various insurer defendants for 20 months, but did not receive full payment on their claim. ACE sought to dismiss the breach of contract and bad faith claims on the basis that it did not issue any insurance policy, but rather National Surety was the insurer.

The court would not dismiss the complaint. First, it remained unclear on the face of the pleading if there was some kind of contract with ACE. The more interesting holding was that a potential bad faith claim could exist even if there were no insurance policy issued by ACE, rejecting the argument that “without a contract there can be no claim for bad faith.” The court specifically did not accept the argument that any cause of action can only arise out of the implied contractual duty of good faith and fair dealing.

The court looked to the leading first party bad faith case of Pickett v. Lloyds. The court ruled, “Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty.’” It referenced Picket as “affirming a jury award where the jury found the insurer’s agent liable ‘for a lack of good faith and fair dealing outside of its agency relationship with Lloyd’s [the insurer]’ and stating that ‘[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds’”

Thus, the court held that “[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Date of Decision: October 20, 2017

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM) (MAH), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)