NO COVERAGE DUE = NO BAD FAITH (New Jersey Federal)
This case involved multiple coverage disputes with different carriers over the same events. New Jersey District Court Judge Michael A. Shipp issued three opinions in this action on the same date (as well as a fourth opinion in a related action). This summary addresses the three coverage/bad faith opinions.
The insured provided services to a Medicare/Medicaid drug plan provider. The plan provider was sanctioned for improprieties with its plan, and was suspended from the program. In turn, the provider brought breach of contract and fraud claims against the insured for its alleged failures in providing services, and its misrepresentations in hiding its failures, all of which caused the sanctions and suspension. The insured ultimately settled the case with the Medicare provider and sought recovery from its various insurers for defense costs and/or indemnification.
The first opinion involves coverage claims against Travelers and ACE (the excess insurer to Travelers), and a bad faith claim against ACE. The court found that no coverage was due from Travelers or ACE under their polices, and thus no defense obligation existed.
On the issue of bad faith, the court applied the “fairly debatable” standard set out in Pickett v. Lloyd’s. If a bad faith plaintiff “could not have established as a matter of law a right to summary judgment on the substantive claim [it] would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”
The court then set out the more detailed criteria to determine the issue.
Judge Shipp observed that “’[a] more difficult application of the standard arises when the issue involves not a denial or refusal to pay a claim but … inattention to payment of a valid, uncontested claim.” (Court’s emphasis). “’In the case of processing delay, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.’”
“’In either case (denial or delay), liability may be imposed for consequential economic losses that are fairly within the contemplation of the insurance company.’” “Whether arising under a denial of coverage or a delay in processing a claim, ‘the test appears to be essentially the same.’”
In the first opinion, the court found the insured was not entitled to coverage from Travelers or ACE under commercial general liability and umbrella policies. Thus, the insured could not “assert a claim for bad faith against ACE.”
The second opinion involved breach of contract and bad faith claims against Allied World Specialty Insurance Company, which had issued a D&O policy. Again, the court found no coverage due, and so no bad faith.
The third opinion addresses claims against Atlantic Specialty Insurance Company and RSUI Indemnity Company (the excess carrier). Breach of contract claims were raised against both carriers, involving D&O defense or coverage, as well as a bad faith claim against Atlantic Specialty. As in the other two opinions Judge Shipp found no coverage due under the Atlantic Specialty policy. Thus, “[b]ecause Atlantic Specialty’s Policy does not provide coverage for the [underlying] action, [the insured] cannot recover consequential damages for Atlantic Specialty’s alleged bad faith delay.”
Dates of Decision: May 31, 2020
Benecard Services, Inc. v. Allied World Specialty Insurance Co., U.S. District Court District of New Jersey Civil Action No. 15-8593 (MAS) (TJB), 2020 U.S. Dist. LEXIS 94806 (D.N.J. May 31, 2020) (Shipp, J.)