Archive for the 'NJ – Standing, Assignment or Outside Scope' Category
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 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)