Laing v. American Strategic Insurance Corporation is a Hurricane Sandy case, alleging that the insurer failed to properly adjust the claim and underpaid under the terms of the policy. The insureds alleged that the insurer both misrepresented the scope of the insurance policy and made false representations regarding scope of the damage to their home. Among other claims, the insureds sought relief for breach of the implied covenant of good faith and fair dealing and for bad faith.
The court found that New Jersey’s Supreme Court has held these two putative causes of action amount to the same claim, with the cause of action now being seen as rooted in contract rather than tort. In interpreting the breach of the implied contractual covenant of good faith and fair dealing in the first party context, an insured must prove (1) the absence of a reasonable basis to deny benefits; and (2) that the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.
There is no bad faith if an insurance claim is “fairly debatable”. The presence of a “fairly debatable” claim is found where the insured “cannot establish ‘as a matter of law a right to summary judgment on the substantive claim,’ i.e., the underlying contract claim.”
In this case, the insurer moved to dismiss the breach of good faith claims under Twombly/Iqbal in federal court; however, the court found that the pleadings were sufficient to make out a bad faith claim.
The court cited with approval the following allegations being sufficient to support plaintiffs’ case at the pleading stage: the insurer “refused to pay [Plaintiffs’ claim] in full, despite there being no basis whatsoever on which a reasonable insurance company would have relied to deny the full payment”: the insurer “knew or should have known that it was reasonably clear that the claim was covered”; the insureds “hav[ing] complied with all policy provisions and hav[ing] cooperated fully with the investigation of this claim,” “[the insurer] and/or its agents improperly adjusted the Plaintiffs’ claim”; the “adjuster misrepresented the cause of, scope of, and cost to repair”; and the insurer “denied at least a portion of the claims without an honest investigation.”
Assuming these allegations to be true as it must under Rule 12(b)(6), this did not make out a fairly debatable case for the insurer at this stage of the litigation. Thus, the court refused to dismiss the claims.
Date of Decision: October 1, 2014
Laing v. Am. Strategic Ins. Corp., Civil Action No. 14-1103 (MAS) (TJB), 2014 U.S. Dist. LEXIS 139739 (D.N.J. Oct. 01, 2014) (Shipp, J.)