Archive for the 'NJ – Claims Handling (reasonable)' Category

INSUREDS HAD ONGOING DUTY TO COOPERATE, AND TO PROVIDE DOCUMENTS AND SUBMIT TO EXAMINATION UNDER OATH IN THIRD PARTY CASE, EVEN AFTER SETTLEMENT (New Jersey Federal)

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The insureds were attorneys sued by an insurance carrier. The insured attorneys sought coverage from their own professional liability carrier, and the malpractice carrier asserted no coverage was due. The attorneys/insureds and the professional liability carrier each sought a declaration in their favor on coverage.

The insureds won an early summary judgment ruling form a magistrate judge that the professional liability carrier had a duty to defend. The magistrate judge denied the professional liability carrier reconsideration and permission to take an interlocutory appeal.  She did not rule on any indemnification responsibility, as the underlying suit against the attorneys remained pending.

The professional liability insurer still wanted to take an examination under oath, and the insured responded by seeking a protective order.  Initially, the magistrate judge administratively terminated the case, pending the outcome of the underlying action.

Issues arose concerning the insured’s cooperation in connection with defending the underlying suit.  The magistrate judge reopened the case, ruling that an examination under oath should go forward, that the insureds had a duty to cooperate under the professional liability policy, and that the insureds were not entitled to defense costs during periods of non-cooperation.

The present decision involves an appeal to the District Court from the magistrate judge’s order.

The magistrate judge found the insureds had failed to cooperate by delaying the examination under oath, failed to respond to the professional liability carrier’s offer of defense, and failed to respond to a request for information. She held that although the insureds did not act in bad faith, their actions did appreciably prejudice the malpractice carrier.

On appeal, the District Court agreed that there had been a failure to cooperate, but this failure was not the result of bad faith. The District Court reversed, however, on the issue of appreciable prejudice, finding none. Most important, the insurer had not “irretrievably lost the opportunity to take [an examination under oath]….” Nor was the carrier “precluded from discovering facts that may weigh against coverage under the Policy.”

The District Court agreed with the magistrate judge that there was no appreciable prejudice due to the insured’s refusal to respond concerning the carrier’s providing a defense, stating: “Irrespective of whether Plaintiffs accepted or rejected the defense offer before the [underlying] suit settlement, the only issue remaining post settlement pertains to indemnification. … Thus, there can be no appreciable prejudice … for its inability to defend the [underlying] suit before it settled. Any dispute regarding Plaintiffs’ alleged failure to provide information, including defense costs, may be addressed when the indemnification issue is decided. Accordingly, because [the professional liability carrier] failed to demonstrate appreciable prejudice, it cannot disclaim coverage for Plaintiffs’ noncooperation under the Policy.”

The District Court affirmed the magistrate’s ruling that there was no defect in the malpractice carrier’s reservation of rights.

Likewise, the District Court upheld the magistrate’s decision that the carrier was entitled to the examination under oath, and finding a failure to cooperate. First, the right to take the examination had not been waived. Nor was the request for the examination unreasonable or unfair: “For the reasons already stated, [the] ROR was proper after this Court determined that [the underlying] suit triggered a duty to defend and reserved on the issue of indemnification. It would defy logic to find that [the professional liability carrier] has a duty to defend and properly reserved its rights as to liability yet preclude an EUO to investigate the underlying claims pursuant to the Policy.”

Finally, simply settling the case did not end the insured’s obligations to cooperate under the policy, which expressly provided the insurer with the right to take an examination under oath.

Date of Decision:  September 23, 2020

Karzadi, v. Evanston Insurance Company, U.S. District Court District of New Jersey No. 17-5470 SDWCLW, 2020 WL 5652442 (D.N.J. Sept. 23, 2020) (Wigenton, J.)

NEW JERSEY BAD FAITH CLAIM FAILS AS TO BOTH DENIAL AND CLAIM HANDLING DELAY (New Jersey Federal)

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The insured successfully defeated a summary judgment motion on the issue of coverage, but lost on bad faith.

The policy excluded coverage for burst radiator pipes unless the insured took reasonable steps to maintain heat at the property to avoid the problem. Here, the 76-year old insured temporarily moved from his home so family could take care of him after double knee surgery. The record showed a detailed history of the insured’s considerable efforts to maintain heating in his absence, and a somewhat unpredictable set of circumstances leading to the local utility turning off his heat for a short time, which unfortunately led to burst pipes and flood damage in the home.

The record showed a jury could find the insured had taken reasonable steps to maintain the heat, and denied the insurer’s summary judgment motion seeking a ruling that no coverage was due.  Thus, the breach of contract claim proceeded.

However, the court did grant the insurer’s motion on bad faith under the fairly debatable standard.

The court first observed New Jersey recognizes two forms of bad faith, either in denying or processing claims. As to the latter, processing focuses on delay in claim handling.

These two types of bad faith claims are subject to “’essentially the same’ test under New Jersey law, namely, the ‘fairly debatable’ standard.” “A bad faith denial claim succeeds when ‘no debatable reasons existed for denial of the benefits.’” “For a processing claim, bad faith is established when there is ‘no valid reason to delay and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’” Merely mishandling a claim, however, is insufficient; rather there must be “knowledge that no reason [for denying the claim] existed’”.

In this case, the insured first argued bad faith denial. The court rejected that claim, observing:

“The policy at issue specifically precludes coverage for damage resulting from frozen pipes unless the insured maintained heat or shut off the water. Plaintiff admits to not shutting off the water. Moreover, the interruption of gas service to the house did result in heat not being maintained. Plaintiff left his house unattended for over a year, with no one checking in on the property, and the gas bills did show no gas usage, even though the bills also charged Plaintiff every month. Thus, while the question of reasonable care will be submitted to the jury, a reasonable factfinder could only find on this record that coverage was, indeed, fairly debatable.”

On the delay in processing theory, “Plaintiff claims that Defendants impermissibly focused on ‘the result’ rather than the ‘reasonable care’ exercised to ensure the house was heated. … However, bad faith process claims are typically grounded in an excessive delay, not the nature of the process itself … and it is undisputed that Defendants promptly responded to and investigated the claim. Indeed, the record shows that an investigation took place within days of the loss, and a final determination was issued exactly one month after the discovery of the loss.”

Date of Decision: September 2, 2020

Titley v. Hanover Insurance Company, U.S. District Court District of New Jersey No. 1:18-CV-13388 (RMB), 2020 WL 5229387 (D.N.J. Sept. 2, 2020) (Bumb, J.)

NO BAD FAITH UNDER NEW JERSEY LAW WHERE INSURED CANNOT ESTABLISH A BREACH OF THE INSURANCE CONTRACT (New Jersey Appellate Division) (Unpublished)

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The insured had a long-term care policy. The carrier denied coverage and the insured sued for breach of contract, bad faith, and breach of the duty to act in good faith. The trial court granted summary judgment on all counts, and the Appellate Division affirmed.

The crux of the case involved policy interpretation and the carrier’s alleged failure to review a physician letter/plan. The trial court found the policy was unambiguous, i.e., it was not susceptible to two reasonable readings of the same policy language, one of which favored the insured over the insurer. Rather, the language was clear, sufficiently prominent, and written in plain language. That language put the insured’s claims outside the policy’s coverage terms.

To the extent the physician letter may have arguably come within the policy’s coverage, the evidence showed that letter was never provided to the carrier before suit. Further, there was no other evidence showing the insurer acted unreasonably.

As to bad faith, “[t]he trial court also found that the bad faith claim failed under the ‘fairly debatable’ standard, since plaintiff could not establish the breach of contract claim as a matter of law.” As stated above, the Appellate Division affirmed on all counts.

Date of Decision: November 12, 2019

Cooper v. CNA Insurance Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4824-17T4, 2019 N.J. Super. Unpub. LEXIS 2316, 2019 WL 5884584 (App. Div. Nov. 12, 2019) (Koblitz, Mawla, Whipple, JJ.) (unpublished)

NO BAD FAITH WHERE INSURER JUSTIFIABLY RELIES ON EXISTING CASE LAW PRECEDENT (New Jersey Appellate Division)

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In this case, the parties disputed the law governing the allocation of insurance coverage payments. At the end of the day, there was no actionable bad faith.

The insurer paid costs for home modifications to cover the needs of the quadriplegic insured, as well as some medical costs, both payments totaling the number provided as the policy limit. The partially paid hospital providing services to the insured asserted, however, that the insurer’s manner of allocating the funds was incorrect, i.e., the policy limits should have gone entirely to its medical costs and expenses. Thus, the hospital argued the insurer must pay additional sums for medical costs it should have paid originally, instead of paying for the home modifications.

The New Jersey Appellate Division panel agreed that the insurer properly relied upon prior Appellate Division precedent both in the manner of allocating payment, and the insurer’s refusal to pay the hospital any sums beyond its policy limits. The court stated the insurer “processed the claim in good faith for the benefit of its insured” in justifiably relying on this case law.

The court recognized that an “insurance carrier may be liable for payments even if such payment exceeds the policy’s coverage limit, if the manner in which the carrier has handled a claim evidences ‘misconduct or bad faith.’” In this case, however, the insurer “acted in good faith reliance on” controlling precedent, “which is evidenced by the fact that it actually exhausted [the insured’s] policy in paying for his necessary home modifications.” There was no evidence of misconduct or bad faith, and no damages beyond what was already paid could be awarded.

Date of Decision: June 25, 2019

Robert Wood Johnson University Hospital v. Plymouth Rock Assurance Insurance Co., New Jersey Superior Court Appellate Division DOCKET NO. A-4195-17T3, 2019 N.J. Super. Unpub. LEXIS 1453 (App. Div. June 25, 2019) (Hass, Mitterhoff, Sabatino, JJ.)

DECEMBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CARRIER’S SETTLEMENT OFFERS ARE BASED ON THIRD PARTY EVALUATION, AND ANY DELAYS WERE CREATED BY INSURED (New Jersey Appellate Division)

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This first party bad faith case centered on damage to plaintiff’s automobile. The insured claimed the carrier knowingly failed to tender the true value of plaintiff’s property damage. The lower court granted the insurer summary judgment on bad faith, and the insured appealed.

The appellate court found no bad faith. The insurer “made multiple offers to settle the claim that were all based upon third-party evaluations” of a vehicle with 269,000 miles on it. Moreover, it was the insured who “initially delayed the processing of the claim by insisting he would obtain an amended police report showing he was not at fault in the accident,” but “after the passage of several weeks, he relented.” Further, after finally supplying requested information to the insurer, the third party evaluator did substantially increase the settlement offer.

Under these circumstances, “no reasonable factfinder could conclude that defendant acted with knowledge or reckless disregard of the lack of a reasonable basis for denying the claim or with reckless . . . indifference to facts or to proofs submitted by the insured.”

Date of Decision: December 3, 2018

Ferro v. Travelers Insurance Co., Superior Court of New Jersey DOCKET NO. A-5174-16T3, 2018 N.J. Super. Unpub. LEXIS 2642, 2018 WL 6272940 (New Jersey Appellate Division Dec. 3, 2018)

OCTOBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CLAIM DENIAL SUPPORTED BY EXPERTS; POTENTIAL BAD FAITH FOR CLAIMS OF RETALIATION (New Jersey Federal)

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In this case, the insured’s damage claim would be covered if damages were caused by a sinkhole. The insured and insurer used a number of experts or investigators, who reached opposite conclusions. The insurer’s “team” relied upon its two engineers who concluded there was no sinkhole, and rejected the insured’s expert in favor of its own experts’ conclusions.

The insured brought breach of contract and bad faith claims. There were two distinct bad faith claims. The first was based on the sinkhole denial. The second was based on the insurer’s alleged threat to seek reimbursement of a previous payment on an earlier claim in retaliation for pursuing the sinkhole claim. The court granted summary judgment on the former, but allowed this threat based action to proceed.

No Bad Faith Where Denial Supported By Experts Made Denial Fairly Debatable

The court denied the insurer’s summary judgment motion on coverage, finding a dispute of fact on whether the loss resulted from a sinkhole. However, the court did grant summary judgment on the bad faith claim for denying coverage.

Under New Jersey’s fairly debatable standard, the bad faith plaintiff must show “the insurer knowingly or recklessly lacked a reasonable basis to deny the claim.” “A bad faith claim must fail where the insurer’s denial of the claim was fairly debatable.” Thus, a “claimant who could not have established as a matter of law a right to summary judgment on [the breach of contract claim] would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”

In this case, the insurer relied upon two expert engineers to deny the claim. The court found that “[n]o facts have been put forth to show that these reports were wholly fraudulent, or were crafted without any investigation or expertise.” It cited Bello v. Merrimack Mut. Fire Ins. Co., for the proposition that the “’fairly debatable’ question was one for the jury, in circumstances “where the insurer relied on a report by a non-engineer that acknowledged the merit of the insured’s claim….” [In that case, the jury found bad faith].

The court concluded: “Examining the record in the light most favorable to Plaintiffs, Defendant rubber-stamped the conclusions of [the insurer’s engineers] and ignored contrary evidence. But the fact that these two engineers arrived at conclusions consistent with Defendant’s decision to deny Plaintiffs’ claim demonstrates that that decision was fairly debatable. Summary judgment must therefore be granted in favor of Defendant on the Second Count.”

Bad Faith Claims Allowed To Proceed On Retaliation Threat Claim

The “insurer acts in bad faith when it acts without a reasonable basis, and when the insurer knows or is reckless in not knowing that its action lacks a reasonable basis.” In its second bad faith count, the insured alleged the carrier’s “decision to retroactively seek reimbursement was made in retaliation for Plaintiffs’ filing a new claim.” The insurer argued that it actually sought reimbursement because of a fraudulent misrepresentation, resulting in erroneous payment. The court found it lacked “sufficient information to rule on this Count as a matter of law,” and denied summary judgment.

Date of Decision: October 9, 2018

Orban v. Liberty Mutual Fire Ins. Co., U. S. District Court District of New Jersey Civ. No. 16-3050, 2018 U.S. Dist. LEXIS 173212 (D.N.J. Oct. 9, 2018) (Thompson, J.)

Should the New Jersey Senate’s proposed Insurance Fair Conduct Act become law in the future, this could very likely change the standards discussed in this case.

JULY 2018 BAD FAITH CASES: NO BAD FAITH WHERE (1) DENIAL WAS REASONABLE AND (2) THERE WAS NO DELAY IN MAKING DECISION TO DENY; COURT ALSO EXPLAINS DUTY TO REIMBURSE VS. DUTY TO DEFEND (New Jersey Appellate Division)

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The central discussion in this case focused on the duty to defend as distinguished from the duty to reimburse. Where there is coverage on the face of the complaint a defense must be provided, with two exceptions. If there are covered and uncovered claims, or the coverage issue is of a kind that cannot be determined through the underlying action against the insured, then the obligation to defend becomes an obligation to reimburse defense costs if it is later determined coverage was due. Thus, an insurer can reserve its rights and dispute coverage, which can turn the duty to defend into a duty to reimburse.

In this case, there was a policy exclusion with anti-concurrent and anti-sequential language, when compared to the allegations in the complaint, made it premature “to order [the insurer] to assume responsibility for the defense since it was unclear, based on the anti-concurrent and anti-sequential language in the exclusion, whether any claims would be covered.” Thus, the duty to defend became a duty to reimburse.

The insured settled the claim, and sought recovery under the Griggs rule. Under Griggs: “Where an insurer wrongfully refused coverage and a defense to its insured, so that the insured is obliged to defend himself in an action later held to be covered by the policy, the insurer is liable for the amount of the judgment obtained against the insured or of the settlement made by him. The only qualifications to this rule are that the amount paid in settlement be reasonable and that the payment be made in good faith.” The Court refused to apply Griggs to this case where a duty to deny a defense and coverage was made in good faith.

Further, the insurer did not breach its duty of good faith in the steps taken to deny the claim. There was no unreasonable delay in denying the claim, and no purported to prejudice the insured.

This opinion provides a good overview of New Jersey law on policy interpretation and coverage disputes, coverage disputes involving exclusions, and anti-concurrent/anti-sequential clauses.

Date of Decision: July 20, 2018

Wear v. Selective Insurance Co., New Jersey Superior Court Appellate Division, DOCKET NO. A-5526-15T1 A-0033-16T1, 2018 N.J. Super. LEXIS 108 (App. Div. July 20, 2018) (Koblitz, Manahan, Suter, JJ.)

APRIL 2018 BAD FAITH CASES: NO BAD FAITH WHERE FIRST PARTY CLAIM HANDLING CONDUCT WAS REASONABLY DEBATABLE, WITH COURT ADDRESSING CLAIM HANDLING, ALLEGED PAYMENT DELAY, RHETORICAL ARGUMENTS, AND ALLEGED CLAIM HANDLER INCOMPENTENCE (New Jersey Federal)

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This is a bad faith case arising out of Superstorm Sandy damage to the insured’s home. Coverage for the full loss was denied, and breach of contract and bad faith claims followed. This opinion involves the insurer’s summary judgment motion on the bad faith claim. Judgment was entered on the bad faith claim for the insurer.

Bad Faith Standards

New Jersey recognizes bad faith claims for “both bad faith in denial of benefits and bad faith in delay of processing of claims.” A bad faith claim might exist where payment was intentionally and unreasonably delayed on an undisputed claim. The test is whether a claim is “fairly debatable”. If the insured cannot establish “as a matter of law a right to summary judgment on the substantive claim [e.g., the breach of the insurance contract]” there is no actionable bad faith claim. The plaintiff has to show the “absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.”

In the first party context, under New Jersey law: “Although a fairly debatable claim is a necessary condition to avoid liability for bad faith, it is not always a sufficient condition. Rather, we are satisfied that the appropriate inquiry is whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.” In this case, the “principal issue presented is whether Plaintiff has adduced factual evidence from which a reasonable jury could find that [the insurer] lacked a fairly debatable reason for denying the disputed portion of the claim. Because in this summary judgment motion [the insurer] has set forth the factual basis for its determinations of coverage and loss, and because Plaintiff has not come forward with evidence that Plaintiff’s entitlement to recover for these losses was so clear that it was not fairly debatable, Plaintiff will be unable to prove its bad faith claim in Count 2 and summary judgment will be granted….”

No bad faith conduct on the record in claims handling

Specifically, the court observed that the insured did not seek summary judgment on the breach of contract claim, and the court itself was not going to find it undisputed that the contract was breached. This alone would appear to be fatal to the insured’s opposition under the reasonably debatable standard. Further, the court observed that the insurer considered the opinions and advice of expert consultants in the claims handling process. The court also listed a variety of “plausible” steps the insurer took to adjust the claim.

No bad faith delay

The court further rejected the insured’s delay argument. It found the insurer promptly investigated the damages, retained experts and a licensed contractor to evaluate the claims, and shared its findings with the insured throughout the process. The insured failed to submit responsible estimates during the process with supporting documentation, and was unresponsive for many months at a time, included a delay in submitting a sworn statement in proof of loss.

Rhetorical assertions without support unsuccessful

The court addressed “Plaintiff’s rhetorical assertions that bad faith is demonstrable from assigning incompetent and inattentive claims adjusters who were ‘repeatedly told … to sit back and wait for the statute of limitations to run out in the hopes that the Plaintiff would miss the filing deadline’….” There was no support for this assertion and, to the contrary, the insured’s large loss director instructed the claim adjuster “to remind Plaintiff’s representatives in writing that the policy contained a two-year suit limitation condition” and the adjuster did so by writing a letter calling “attention to the suit limitation in advance of the approaching deadline.”

Alleged incompetent adjusting did not affect this claim

Early in the claims handling process an adjuster was criticized by his superior for not documenting the file. That adjuster was replaced. However, that this adjuster “temporarily failed to address the potential claim does not give rise to a material factual dispute, as it is undisputed that proper investigation was undertaken, results were shared and explained to Plaintiff and Plaintiff’s agent, and the claim file was put squarely on track as directed by the management. That there remains an area of disputed claims, as alleged in Count One, does not imply that those disputes were caused by [the insurer’s] deliberate indifference to a proper investigation and claims adjustment process.”

Attorney’s fees not recoverable

The court previously ruled that attorney’s fees could only be recoverable as consequential damages on a bad faith claim, and not for a direct suit to enforce casualty or other direct coverage. Since the bad faith claim was dismissed, no attorney’s fees were recoverable.

Date of Decision: March 29, 2018

Breitman v. National Surety Corp., Civil Action No. 14-7843 (JBS/AMD), 2018 U.S. Dist. LEXIS 52496 (D.N.J. Mar. 29, 2018) (Simandle, J.)

FEBRUARY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER DID NOT SECRETLY CONCEDE COVERAGE, NOR RELY UPON A CLEAR ERROR IN ITS DENIAL LETTER (New Jersey Federal)

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The New Jersey federal court had to apply the “reasonably debatable” standard to the bad faith denial claim in this matter. The insured had two theories of bad faith liability.

The first was that the insurer’s adjuster sent an internal email conceding coverage. However, what the email actually stated was that while the damage claims may have fallen within one policy definition, it also referenced potentially applicable exclusions. “Thus, the critical email fails to support [the insured’s] repeated allegation that the email unequivocally reflects that [the insurer] believed that [its insured] had coverage. Instead, the email itself states that exclusions may apply which would negate coverage.”

Second, the insurer’s denial letter included an erroneous interpretation of the policy, affecting the exclusion. The insurer admitted it made this error. There was no bad faith, however, because the insurer never pressed forward on this position, and it “took the same position regarding denial of coverage without reference to either limitation.”

By contrast: “If the facts were different, for example if [the insured] had evidence that [the insurer] denied the claims believing that they were in fact covered, but attempted to pull a sleight of hand by pointing to irrelevant policy provisions, the Court’s decision concerning bad faith could be different.” This was not the case, and summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: December 30, 2016

National Manufacturing Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 U.S. Dist. LEXIS 180145 (D.N.J. Dec. 30, 2016) (Vazquez, J.)

FEBRUARY 2016 BAD FAITH CASES: NO BAD FAITH WHERE INSURER MAKES PAYMENT TO PLAINTIFF’S BANK WHICH WAS LISTED AS THE NAMED INSURED IN THE POLICY (New Jersey Federal)

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In Hossain v. American Security Insurance Company, the court rejected the notion that an insurance payment to the plaintiff’s bank was made in bad faith.  Under the relationship between the insured and the bank, the insured’s policy listed the bank as the named insured, and the insured as the borrower. “The insurance policy … explains that loss payments ‘will be made payable to the named insured and the borrower as their interests appear.’” Thus, there was no violation by the insurer making payment directly to the bank.

Date of Decision:   February 8, 2016

Hossain v. Am. Sec. Ins. Co., Civil Action No. 15-8138, 2016 U.S. Dist. LEXIS 14871 (D.N.J. Feb. 8, 2016) (Simandle, J.)