MAY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S INTERPRETATION OF POLICY LANGUAGE WAS FAIRLY DEBATABLE (New Jersey Federal)
In this case, the insured was an insurer itself (the plaintiff), which was in turn insured under a Trustees Errors and Omissions Liability Insurance for Self Insured Funds by the bad faith defendant insurer (defendant). The plaintiff had settled a matter for its insured above its policy limits, expecting contribution from excess insurers. The excess insurers asserted that they had not received proper notice from plaintiff that the claim could exceed policy limits, and denied any duty to pay toward the settlement.
Without admitting any actual error, the plaintiff sought coverage from defendant for the sum over its policy limits, should that exposure remain due to plaintiff’s failure to give notice to the excess insurers. The defendant denied coverage, asserting that there was no “claim” against the plaintiff as defined in the policy because there was no demand made or threat of litigation against the plaintiff. The defendant had asked that the plaintiff keep it advised of any such developments.
The court found that the policy language was unambiguous and the defendant’s basis for denying coverage was “fairly debatable”. Thus, there could be no bad faith claims, and such claims were dismissed.