NO BAD FAITH WHERE CLAIM HANDLING REASONABLE, AND EXPERT REPORT ON BAD FAITH IS A “NET OPINION” (New Jersey Superior Court, Appellate Division)

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This case addresses the reasonableness of an insurer’s investigation, the timing of what facts are relevant to evaluating coverage denial in the bad faith context, and the adequacy of an expert bad faith report.

The insurer denied coverage for a stolen/missing excavator. The excavator was ultimately recovered. The insured argued that the carrier’s investigation was unduly long and carried out in bad faith. The court disagreed and granted the insurer’s summary judgment motion, finding:

  1. The insurer carried out a seven-month long investigation.
  2. “Much of the delay in the investigation arose from plaintiffs’ failure to timely cooperate with defendants and their adjuster.”
  3. The insured “failed to provide requested documents on several occasions.”
  4. “He was unable to provide proof that the excavator was fully paid and could not remember if he paid the balance due with a check.”
  5. The policy gave the insurer a right to request an examination under oath, and “[t]he EUO was delayed for four months primarily due to adjournments by plaintiffs’ counsel.”
  6. “The EUO was not completed and there were outstanding requests for documents when the excavator was found.”

These facts were in accord with the “well-established [New Jersey law] that an insurer has the right to investigate whether a claim is covered under the applicable policy.”

The insured also provided an expert report to support its bad faith claim. The trial court considered the original expert report questionable, and provided an opportunity to supplement the report with an expert deposition. This was not enough. The court states:

But the expert report and subsequent deposition contained nothing but net opinions. The expert’s conclusions were not based upon the information available to defendants during the period of investigation, and the expert was unaware of and did not refer to the bad faith standard enunciated in Pickett [v. Lloyds, 131 N.J. 457 (1993)]. The expert also failed to state the applicable standard of care. His opinion, providing options defendants could have taken regarding the claim, is not equivalent to opining what the standard of practice is in the industry regarding a payment of a theft claim.

The court concludes:

Under the presented circumstances, there was a fairly debatable reason for the delay in handling the claim. Therefore, plaintiffs could not demonstrate any bad faith on defendants’ part in handling and investigating the claim and finally denying it.

Date of Decision: April 11, 2022

Newton v. Cutruzzula, New Jersey Superior Court Appellate Division No. A-0365-20, 2022 WL 1073029 (N.J. Super. Ct. App. Div. Apr. 11, 2022) (Currier and DeAlmeida, JJ.)