MARCH 2015 BAD FAITH CASES: MOTION TO DISMISS NOT SUITABLE MEANS TO ADDRESS WHETHER INSURER’S POSITION WAS FAIRLY DEBATABLE, IN THIS ACTION, AND WAS THEREFORE DENIED (New Jersey Federal)
In Zodda v. National Union Fire Insurance Company, the insured pleaded bad faith, among other claims, for denial of benefits on a disability policy. The insured brought claims against multiple insurers, alleging an elaborate scheme in marketing the disability insurance at issue, and in denying benefits. As to the insurance bad faith claim, the insurers brought motions to dismiss under Twombly/Iqbal.
Defendants attempted to introduce a letter concerning the insured’s medical condition to show that coverage was at least fairly debatable, and thus not subject to a bad faith claim. The court rejected this effort at the motion to dismiss stage. The medical records relied upon were both outside the complaint, and contradicted by the allegations in the complaint. Further, the motion was premature because “[a] factual issue that appears debatable at the motion to dismiss stage may prove immaterial following discovery.” Thus, whether or not the material facts were fairly debatable would be best addressed at the summary judgment stage, after discovery.
The court did dismiss the claim against one insurer, however, because that insurer had sold its business, prior to the relevant time period, and no request was made to that insurer to pay the benefits at issue. “Under these circumstances, [that insurer] cannot be liable for a bad faith insurance claim when it had no connection to the policy at the point when the claim was denied.”