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“Where breach of the implied covenant of good faith and fair dealing claims lack a distinct factual predicate, courts may dismiss them at the motion to dismiss stage.”

The homeowner’s insurer paid $345,969.69 for water damage to the insured’s property.  The insured alleged breach of contract and bad faith, among other claims, for the insurer’s not providing full reimbursement for all items that should have been covered, with an alleged balance due of $91,167.84. The insured alleged he relied on the insurer’s representations it would “’properly and timely pay’ to restore the premises, and that its bad faith conduct has denied him the ability to properly and timely reconstruct the premises and make it habitable.”

The insurer moved to dismiss the bad faith, breach of fiduciary duty, consumer fraud, punitive damage and attorney’s fee claims.

Failure to Plead Plausible Bad Faith Claim from Coverage Denial Alone

The court recognized New Jersey insurance bad faith claims are torts arising out of the implied duty of good faith and fair dealing to process policyholder claims. Plaintiffs must establish the absence of any reasonable basis to deny benefits and that the insurer knew or recklessly disregarded this lack of a reasonable basis to deny the insured’s claim for coverage.

For federal pleading purposes, courts will not infer bad faith based on coverage denial, standing alone. New Jersey Federal Judge Hayden found that, “plaintiff has not provided sufficient factual allegations to suggest that [the insurer] had an ‘ill motive’ or lacked a ‘reasonable basis’ to deny coverage.”

The following allegations against the insurer did not meet federal pleading standards to set out a plausible bad faith claim: “that it failed to provide him with periodic status reports, refused his request for an independent senior management review, and failed to pay the replacement costs for materials and labor—and further alleges that it ‘has generally acted in bad faith with this claim.’” Such allegations could not make out a plausible case for “’ill motive to frustrate’ plaintiff’s ability to reconstruct the premises or [that the insurer] otherwise acted in bad faith.”

The court then added “[e]ven if plaintiff had adequately pled an implied covenant/bad faith cause of action, his claim would be dismissed as duplicative of his breach of contract action. It is well settled that ‘[w]here a party has breached a specific term of a contract, that party cannot be found separately liable for breaching the implied covenant of good faith and fair dealing ‘when the two asserted breaches basically rest on the same conduct.’” Thus, “[w]here breach of the implied covenant of good faith and fair dealing claims lack a distinct factual predicate, courts may dismiss them at the motion to dismiss stage.”

No Breach of Fiduciary Duty Claim Stated

Judge Hayden agreed the insured failed to plead any facts establishing an independent basis for a fiduciary duty, and this claim too was a mere attempt to bootstrap a breach of contract claim into something more. “New Jersey federal and state courts have consistently held that a fiduciary duty ‘does not necessarily exist in a first-party [insurance] situation.’” “Rather, a claim for breach of fiduciary duty in the first-party insurance context is tantamount to a claim for breach of the implied covenant of good faith and fair dealing.”

No Consumer Fraud Act Claim Stated

Judge Hayden observes, “it is well settled that ‘payment of insurance benefits is not subject to the [CFA].’ … Accordingly, courts analyzing CFA claims in the insurance context must distinguish between ‘claims that allege fraudulent performance by the insurer,’ which are covered by the CFA, and those that allege a mere ‘refusal to pay benefits,’ which are not covered.”

The present claim is premised on an alleged failure to properly and timely process the insured’s claim, “which, at its core, is a denial of benefits claim to which the CFA is inapplicable.” Any potentially colorable allegations that might fall within the CFA failed to meet Rule 9 pleading standards.  Thus, the CFA claim was dismissed.

No Punitive Damages or Attorney’s Fees Permissible

Finally, the court observed that under New Jersey statutory law, punitive damages cannot be recovered for breach of an insurance contract alone.  Moreover, punitive damages are not available solely for insurance bad faith allegations, absent adequately pleading the kind of willful and wanton conduct that permits for punitive damages under the controlling statute.  No such pleadings existed in this case.

The court also dismissed the claim for attorney’s fees.  While the controlling court rule, 4:42-9, “provides that attorneys’ fees are available ‘[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant[,]’ [t]he comment to the Rule clarifies … that it ‘should not be extended, beyond its express terms, to permit a counsel fee award to be made to an insured who brings direct suit against his insurer to enforce casualty or other direct coverage.’” New Jersey’s federal courts “have consistently held that counsel fees are not recoverable in first-party insurance actions.” Since the insured sued the insurer for coverage, the insured is “plainly ineligible for counsel fees, and any demand for them must be dismissed with prejudice.”

Date of Decision:  December 22, 2021

Veyhl v. State Farm Fire and Casualty Company, U.S. District Court District of New Jersey No. 21CV10112KSHCLW, 2021 WL 6062304 (D.N.J. Dec. 22, 2021) (Hayden, J.)