SEPTEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE CLAIM DENIAL DEBATABLE, AND NO PUNITIVE DAMAGES CLAIM POSSIBLE (District of New Jersey)
The insureds purchased a property in 2004. Initially, the insureds did not know that the property contained an underground heating oil tank. In May of 2014, the insureds had the tank removed. During removal, a municipal inspector detected a fuel oil discharge on the property. The discharge resulted in soil and groundwater contamination, and the insureds incurred significant remediation costs.
The insureds submitted claims for the remediation under their homeowners policies, to two insurers. The insurers rejected the claim because the loss was not a sudden and accidental occurrence. Insurer I’s expert report stated that the loss was not “a result from a quick, abrupt, or catastrophic event.”
The insureds filed a coverage action against Insurers I and II, and asserted claims of bad faith. The insurers moved for summary judgment on the bad faith claims, arguing that the insureds failed to show the absence of a reasonable basis for denial of the claim. The insureds did not contest insurers’ argument that its position was debatable, and as such, the Court deemed the issue conceded. Thus, the Court granted Insurer I and II’s motion for summary judgment as to the bad faith claim.
Insurer II also moved for summary judgment as to the insureds’ claim for punitive damages. Because the standard for punitive damages “is a showing by clear and convincing evidence of some egregious circumstances or wantonly reckless or malicious conduct by the insurer[,]” an even more exacting standard than the one used for bad faith, the Court struck this claim.