JULY 2014 BAD FAITH CASES: COURT FINDS THAT FAILURE TO CURE TITLE DEFECTS COULD BE NEGLIGENCE, BUT DOES NOT ESTABLISH BAD FAITH UNDER NEW JERSEY LAW CONCERNING DELAY IN CLAIM PAYMENT (Third Circuit)
In Granelli v. Chi. Title Ins. Co., plaintiffs brought claims for bad faith and negligence, inter alia, against defendant title insurer, alleging that the insurer failed to find and resolve several title defects which repeatedly prevented them from selling their home. Although the insurer cured all defects after the commencement of the litigation, the plaintiffs amended the complaint, alleging that the insurer’s failure to cure the defects in a timely matter amounted to bad faith.
The lower court found that the insurer failed to cure the defects by filing quiet title actions due to a company-wide reorganization and a shut-down of the New York claims office. This reorganization occurred in the wake of the 2008 financial crisis while the insurer was handling a high volume of bankruptcy proceedings. Although the Court of Appeals vacated the District Court’s grant of summary judgment regarding Plaintiffs’ breach of contract and negligence claim, it affirmed summary judgment on the bad faith claims.
Addressing the plaintiffs’ bad faith claims, the Court stated that, under New Jersey law, in the case of a delay rather than an outright rejection, “[b]ad 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 reason ssupported the delay…”
Judge Vanaskie compared the instant case to others from the New Jersey Supreme Court, reasoning that a delay due to restructuring was analogous to delays caused by a company-wide computer crash. The Court held that, although the delays may be found to constitute negligence, they were not sufficient to show any bad faith by the insurer.
The Third Circuit vacated the District Court’s judgment that the insurer’s actions were not negligent, but affirmed the lower court’s decision regarding bad faith.