Archive for the 'NJ – Standing, Assignment or Outside Scope' Category
Plaintiff’s godfather died in a hospital, of what plaintiff claimed was medical malpractice. Plaintiff attempted to sue the hospital’s insurer for bad faith. He alleged the insurer failed to negotiate a good faith settlement of the godson’s malpractice claim against the insured hospital. The trial court found plaintiff had no standing to bring such a claim.
The Appellate Division agreed that, absent an assignment by the insured hospital, a third party like plaintiff had no standing to bring a direct bad faith claim against an insurer. Quoting from the Law Division’s opinion, the court observed, e.g., “public policy does not mandate that the injured party in an accident should be deemed the intended beneficiary of an insurer’s contractual duty to its insured to act in good faith regarding settlement.” The Appellate Division reiterated that even if plaintiff were a beneficiary under this godfather’s will, “plaintiff is precluded from filing a direct claim against defendant absent an assignment of rights.”
The court also made clear it disagreed with plaintiff’s “assertion on appeal that he is an implied or expressed third-party beneficiary who can pursue his claims under a common law theory of tort liability.” The record demonstrated “the essential prerequisites for a finding of common law tort liability are entirely absent. There was nothing demonstrating the insurer breached any duty to the third party/godson.
In summing up, the Appellate Division found “no basis, including public policy considerations, on which to conclude that plaintiff is a third-party beneficiary, who was owed a duty by defendant.”
Date of Decision: October 28, 2020
Yew v. Penn National Insurance, Superior Court of New Jersey Appellate Division No. A-1526-19T4, 2020 WL 6301366 (N.J. Super. Ct. App. Div. Oct. 28, 2020) (Firko, Rose, JJ.)
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.)
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.)
In this case, the insured sued her mother for injuries suffered from a slip and fall at the mother’s house. She also brought a bad faith claim against the mother’s insurer for refusing to assess the claim and give the daughter a payment. The trial court found no negligence and granted the mother summary judgment. The Appellate Division agreed.
There is no reference in the opinion that the claim against the insurer was assigned to the daughter, and there was clearly no judgment against the mother giving the daughter a direct action against the insurer. Thus, it is unclear how the daughter even had a right to assert a bad faith claim against her mother’s insurer in the first instance.
That being said, the court found no basis for the bad faith claim once it was ruled the insured was not negligent. The Appellate Division held “that plaintiff’s claim for bad faith … lacked any legal basis once the judge found that [the] insured … was not negligent.”
Date of Decision: June 27, 2018
Spellman v. Theresa Kosenski & Plymouth Rock Assurance, New Jersey Superior Court Appellate Division NO. A-3381-16T3, 2018 N.J. Super. Unpub. LEXIS 1539 (N.J. App. Div. June 27, 2018) (Reisner and Mayer, JJ.)
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.)
In Nationwide Mutual Insurance Company v. Caris, the underlying facts involved the alleged fraudulent sale of a property with contamination. The insureds entered a consent judgment and assigned their rights against the carrier to the buyers. The buyers then brought various claims against the insurer, including bad faith claims.
The court dismissed a New Jersey Consumer Fraud Act claim because the allegation was that the insurer failed to provide benefits, not that it procured the insurance policy through fraud.
The assignees also had raised a negligence per se claim for improper claims handling and failure to give timely notice that no coverage would be provided. The court found that the assignees had no standing to bring a claim based upon negligence, as such a claim could not be assigned to them prior to judgment being entered.
Moreover, to the extent this was pleaded as an alternative to asserting a bad faith claim, no such cause of action exists under New Jersey law: “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence.”
Finally, “there is no private right of action for policyholders against their insurers based on UCSPA violations or negligence.”
Turning to the bad faith claim: the insured “must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.” New Jersey courts apply the “fairly debatable” standard, meaning “if there are material issues of disputed fact which would preclude summary judgment as a matter of law, an insured cannot maintain a cause of action for bad faith.”
“In the case of processing delay, bad faith is established by showing no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” This is essentially the same as the fairly debatable standard, and the “mere failure to settle a debatable claim does not constitute bad faith.”
Despite a litany of bad faith allegations, the assignees could not establish the insurer lacked a reasonable basis to deny coverage, or that its coverage position – that there was no property damage caused by an occurrence during the policy period – was unreasonable.
Thus, “[w]hen a carrier proffers ‘plausible reasons for the denial of coverage’ and ‘demonstrates that there is, at the very least, genuine questions regarding whether [an insured’s] claims fall within the coverage provided,’ dismissal of a related bad faith claim is proper, even on a motion to dismiss.”
The burden in this case was on the insureds to prove the property damage occurred during the policy period, and the court found that issue was fairly debatable. Thus, it granted the motion to dismiss the bad faith claim.
Date of Decision: March 14, 2016
Nationwide Mut. Ins. Co. v. Caris, No. 14-5330, 2016 U.S. Dist. LEXIS 33407 (D.N.J. Mar. 14, 2016) (Rodriguez, J.)
In Ross v. Lowitz, New Jersey’s Supreme Court reaffirmed the rule that an injured party has no direct rights against a tortfeasor’s insurer, absent an assignment or standing as an express third party beneficiary.
In that case, the plaintiffs suffered damages from their neighbor’s oil tank leak. They sought to bring claims directly against the neighbor’s insurer, in the absence of an assignment. The court observed that generally, “an individual or entity that is ‘a stranger to an insurance policy has no right to recover the policy proceeds.’” A non-insured may get around this limitation and bring a bad faith claim against a tortfeasor’s insurer by virtue of an assignment of rights. In this case, however, there was no such assignment. Rather, the injured parties took the position that they were third-party beneficiaries to the tortfeasor’s insurance contracts with here insurers, “and that the insurers breached that duty by delaying the remediation of [the injured plaintiffs’] residence.”
The court’s analysis made clear that there was no automatic third party beneficiary status under insurance policies to parties injured by the insured. In essence it rejected the idea of universal third party status to the public who might be injured by an insured, or retroactive findings that an injured third party must have been an intended beneficiary because all injured parties are intended to be party to the contract by virtue of being injured by the insured.
Instead, to determine third party beneficiary status, an inquiry must be made into whether the insured and insurer, as the contracting parties, “’intended others to benefit from the existence of the contract, or whether the benefit so derived arises merely as an unintended incident of the agreement.’” In this inquiry, the determining factor is the intention of the contracting parties.
“’Thus, the real test is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts; and the fact that such a benefit exists, or that the third party is named, is merely evidence of this intention.’” In making this determination: “If there is no intent to recognize the third party’s right to contract performance, ‘then the third person is only an incidental beneficiary, having no contractual standing.’”
The court then observed the basic theory of bad faith loss, under the contractual duty of good faith and fair dealing when processing claims: “In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay. . . . [L]iability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.”
It then observed that this claims processing duty to the insured had “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.”
Citing the Appellate Division, “[t]he right of the assured to recover against the insurer for its failure to exercise good faith in settling a claim within the limits of a liability policy . . . is predicated upon the potential damage to the assured in being subjected to a judgment in excess of her policy limits and the consequent subjection of her assets to the satisfaction of such judgment. The damage is peculiarly to the assured by reason of a breach of an implied condition of the policy contract. The injured third party is a stranger in that sense. Moreover, public policy does not mandate that the injured party in the accident should be deemed the intended beneficiary of the company’s contractual duty to its policyholder to act in good faith regarding settlement.” (Emphasis in original)
The Supreme Court concurred in this reasoning, finding that it “is a fundamental premise of contract law that a third party is deemed to be a beneficiary of a contract only if the contracting parties so intended when they entered into their agreement.” (Emphasis added) In the case at hand, there was “no suggestion in the record that the parties to the insurance contracts at issue had any intention to make plaintiffs, then the neighbors of the insured, a third-party beneficiary of their agreements. Nor does the migration of oil from [the insured’s] property to plaintiffs’ residence retroactively confer third-party beneficiary status on plaintiffs. The insurers’ duty of good faith and fair dealing in this case extended to their insured, not to plaintiffs.”
Thus the insurers were granted summary judgment.
Date of Decision: August 6, 2015
Ross v. Lowitz, A-101 September Term 2013, 074200, 2015 N.J. LEXIS 819 (N.J. August 6, 2015)
In Lime Tree Assocs., LLC v. Burlington Ins. Co., the court considered whether an insurer had properly denied coverage under a ‘no assignment’ clause in the policy, where the underlying insured-company underwent a statutory merger, resulting in a surviving LLC. Under New Jersey law, such a merger entitles the surviving entity to “all of the rights, privileges and powers of each of the partnerships and other business entities that have merged or consolidated, and all property, real, person and mixed, and all debts due to any of those partnerships and other business entities, as well as all other things and causes of action belonging to each of those partnerships and other business entities.”
The insurer denied coverage for a personal injury suit under the ‘no assignment’ clause, as well as under the definition of “insured,” which had been modified by a ‘new entities’ exclusion.
Whether the policy language prevented a transfer of contractual rights following and through a merger is an issue that has not yet been considered by the New Jersey Supreme Court, but has been previously addressed by the Appellate Division of New Jersey and district courts of the Third Circuit. Those jurisdictions have all held that in order to prevent a transfer of rights through merger or by operation of law, the contract’s language must be explicit – the exclusionary language must have anticipated such a transfer and purposefully prevented it.
Therefore, a generic clause barring assignment would be insufficient to bar coverage; rather, to be given effect, the exclusionary clause must contain language that specifically addresses the circumstances and issues at hand. The court determined the no assignment clause in the policy was neither specific nor explicit with regard to transfer by merger or operation of law, and was therefore insufficient to bar coverage.
Furthermore, the reasoning behind the no assignment clause did not support a denial of coverage; no assignment clauses are intended to protect the insurer from unknowingly insuring against unforeseen risks when the coverage is transferred to a different insured, but where the loss has occurred prior to the transfer of coverage, that risk is abated entirely.
For that reason, courts have refused to apply no assignment clauses to transfers occurring by operation of law because such transfers do not entail any increase in the risk or hazard assumed by the insurer. This comports with New Jersey’s practice of strictly construing clauses that are designed to limit coverage.
Coverage was also not excluded by the new entities exclusion because the surviving entity was not a new entity; it succeeded to all of the original insured’s rights automatically and as a matter of law under the state statute. Therefore, the surviving entity was not a newly acquired entity; it was merely a continuation of the original entity.
The court awarded the LLC counsel fees under R. 4:42-9(a)(6), citing authority that the insured was entitled to such fees as the successful claimant. The insurer had declined a defense “even though it knew about their valid statutory merger.” Moreover, although the insurer’s “refusal may not have been in bad faith,” denying the insured counsel fees would have deprived it of the full benefit of its insurance contract.
New Jersey Court Rule 4:42-9(a)(6) permits, at the discretion of the trial court, an award of counsel fees in “an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.”
Date of Decision: November 25, 2014
In Klein v. Hanover Insurance Company, the court addressed the not infrequent situation where an insurance company is part of a family or group of insurers, and either the group name or another member of the group is named as a defendant. In this breach of contract/breach of the covenant and good faith and fair dealing case, the insurer named on the policy was issued by Citizens Insurance Company, which was part of the Hanover Insurance Group, Inc. However, the insured named Hanover Insurance Company, another member of Hanover Insurance Group, as the defendant. The court dismissed the claims as the Hanover Insurance Company was not a party to the insurance contract.
Date of Decision: October 27, 2014
Klein v. Hanover Insurance Company, Civil Action No.: 14-1055, 2014 U.S. Dist. LEXIS 152407 (D.N.J. Oct. 27, 2014) (Cecchi, J.)
In Ross v. Lowitz, New Jersey’s Appellate Division upheld the lower court’s dismissal of a third party’s claims directly against the insurers of the alleged tortfeasor for bad faith in the processing of the claim brought by them against the tortfeasor-insured. The lower court had found in a comprehensive written statement of reasons, that there was no basis as a matter of law to assert direct claims alleging breach of the covenant of good faith and fair dealing against the insurance companies, as there was no fiduciary duty or any special relationship between them.
The appellate court first noted that persons purportedly injured by the carriers’ insured are precluded from filing direct claims against the insurance companies absent an assignment of rights. In addition, these parties were not third-party beneficiaries to the contracts of insurance. Thus, the grant of summary judgment on this claim was upheld.
Date of Decision: March 18, 2014
Ross v. Lowitz, DOCKET NO. A-1024-12T4, 2014 N.J. Super. Unpub. LEXIS 568 (N.J. Super. Ct. App. Div. March 18, 2014) (Ashrafi, St. John, and Leone, JJ.)
