MARCH 2015 BAD FAITH CASES: INSURER ENTITLED TO ATTORNEY’S FEES AGAINST OTHER INSURER IN DECLARATORY JUDGMENT ACTION; CLAIM OF UNCLEAN HANDS REJECTED (New Jersey Federal)
In Carolina Casualty Insurance Company v. Travelers Property Casualty Company, the plaintiff insurer brought a declaratory judgment action against two other insurers. It sought a judgment that it owed no defense or coverage obligations in connection with an underlying claim. The defendant insurers were successful in finding plaintiff owed coverage. The plaintiff insurer was required to pay reimbursement toward a prior settlement, paid fully by defendant insurers.
The defendant insurers sought attorney’s fees and costs under R. 4:42(9)(a)(6), as the prevailing parties in the coverage action. The parties agreed a successful carrier could recover under the rule, however, the plaintiff insurer argued the defendant insurers should not be allowed to recover, under the doctrine of unclean hands. It claimed that the defendant insurers were precluded from recovery for deliberate delays and failures to settle, and by bringing a claim against another insurer which they later abandoned; all of which allegedly increased the legal fees.
The court rejected this argument, finding that there was “no conduct so inequitable as to bar an otherwise appropriate recovery.” Rather, the defendant insurers had a “right to assert their case against a potentially liable insurer…, [and] [t]hat they subsequently chose to release their claims (which turned out to be worth $15,000) is not blameworthy.” Thus, they could still recover fees and costs under Rule 4:42-9(a)(6).
Moreover, even if these carriers were somehow “dilatory, these acts are not ‘directly related’ in the sense that they are inconsistent with the basic entitlement to costs.” The court analogized this to the recovery of attorney’s fees in insurance bad faith cases, such as breaching a fiduciary duty to settle claims, noting that the mere failure to settle a debatable claim does not give rise to bad faith. In this case, the defendant insurer’s position was not only debatable, it was correct; and its failure to accept the plaintiff insurer’s settlement offer was not inequitable.