JUNE 2015 BAD FAITH CASES: UNDER “FAIRLY DEBATABLE” STANDARD, INSURER DENIED SUMMARY JUDGMENT BECAUSE REASONABLE EXPECTATION OF COVERAGE (New Jersey Federal)
In Hawkins v. Globe Life Insurance Company, the Court denied an insurer’s motion for summary judgment on an insured’s bad faith claim. In late August 2011, the insured applied for a second policy of insurance on the life of her nineteen year-old son, who was murdered after the insurer received the insured’s enrollment form and premium payment but before the insurer formally approved the policy. Because the insured’s son was killed before the policy was formally approved, the insurer denied coverage. The insured subsequently sued to recover the proceeds of the life insurance policy and alleged bad faith, and the insurer filed a motion for summary judgment.
Under the “fairly debatable” standard in first party bad faith claims, “[t]o show a claim for bad faith, a plaintiff must 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. It is apparent, then, that the tort of bad faith is an intentional one . . . implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless . . . indifference to facts or to proofs submitted by the insured.” Further, “[i]n order to determine whether an insured’s decision denying coverage was made in bad faith the insured must first be granted summary judgment on the issue of coverage.”
The Court denied the insurer’s motion for summary judgment because the insured “had a reasonable expectation of interim coverage based on the materials she received from [the insurer] and because [the insurer] received her enrollment form and first premium payment” while the insured’s son was still alive.
Moreover, as to the first prong of the fairly debatable standard, it appears that the Court would have plainly ruled for the insured on coverage; however, it did not do so because the Plaintiff had not moved for summary judgment. The Court noted that it had “determined that plaintiff had an objectively reasonable expectation that she had interim coverage when [the son] died,” but it was not going to enter judgment for the insured on coverage sua sponte, as the plaintiff had not filed a cross-motion for summary judgment. Thus, the insurer’s motion for summary judgment on the bad faith claim was denied.