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The insured disputed the sum the insurer was willing to pay for property damage. She brought claims for breach of contract and breach of the implied covenant of good faith and fair dealing, seeking punitive damages on both counts. The original complaint was dismissed and she filed an amended complaint. The insurer moved to dismiss the punitive damages claims.

In New Jersey, punitive damages are governed by statute, N.J.S.A. §2A:15-5.12(a): “Punitive damages may be awarded to the plaintiff only if the plaintiff proves, by clear and convincing evidence, that the harm suffered was the result of the defendant’s acts or omissions, and such acts or omissions were actuated by actual malice or accompanied by a wanton and willful disregard of persons who foreseeably might be harmed by those acts or omissions.”

Under New Jersey law, punitive damages require more than showing a breach of good faith obligations. Egregious circumstances are required, described by the court as malicious, evil-minded, or wanton acts of reckless disregard. In this case, the insured failed to plead actual malice or a wanton and willful disregard for her rights, and the punitive damages claims were dismissed.

Specifically, as to the breach of contract claim, the insured claimed that “aggravated circumstances” were present, providing an exception to the usual rule that punitive damages cannot be recovered for contract claims. The court thought otherwise: “Plaintiff’s Amended Complaint does not provide adequate factual allegations to support this assertion, nor does she suggest the existence of any fiduciary relationship.”

As to the implied covenant of good faith and fair dealing claim, the court again focused on whether there was any special relationship between the insured and insurer, or aggravated circumstances. In a first party coverage case, New Jersey law holds there is no fiduciary relationship. Thus, punitive damages cannot be asserted under a special relationship theory. Further, as stated above, no aggravated circumstances were pleaded.

In addition, the court looked at the leading case of Pickett v. Lloyd’s on tort theories and punitive damages, stating:

Plaintiff relies on Pickett, … as to an insurance company’s bad faith liability when denying benefits or processing a claim. …. The court in Pickett held that a claimant must show that either there was no debatable reason to deny benefits or, as to a processing delay, no valid reason existed for the delay and the insurance company knew or recklessly disregarded that fact. …. The court also asserted that while there is no right to punitive damages for an insurer’s wrongful refusal to pay a first-party claim, “[d]eliberate, overt and dishonest dealings” were torts distinct from a bad-faith claim. …. As pled, Defendant’s behavior does not rise to the level of egregiousness required for an award of punitive damages. Plaintiff has not sufficiently alleged that there were any deliberate, overt, or dishonest dealings on Defendant’s part.

As the insured had already been given an opportunity to re-plead punitive damages in an amended complaint, the punitive damages claims were dismissed outright.

Date of Decision: June 20, 2019

Johnson v. Encompass Insurance Co., U. S. District Court District of New Jersey Civil Action No. 17-3527 (JMV) (MF), 2019 U.S. Dist. LEXIS 103290, 2019 WL 2537809 (D.N.J. June 20, 2019) (Vazquez, J.)