THIRD PARTY LACKS STANDING TO BRING BAD FAITH CLAIM ABSENT ASSIGNMENT (New Jersey Appellate Division)

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Plaintiff’s godfather died in a hospital, of what plaintiff claimed was medical malpractice. Plaintiff attempted to sue the hospital’s insurer for bad faith. He alleged the insurer failed to negotiate a good faith settlement of the godson’s malpractice claim against the insured hospital. The trial court found plaintiff had no standing to bring such a claim.

The Appellate Division agreed that, absent an assignment by the insured hospital, a third party like plaintiff had no standing to bring a direct bad faith claim against an insurer. Quoting from the Law Division’s opinion, the court observed, e.g., “public policy does not mandate that the injured party in an accident should be deemed the intended beneficiary of an insurer’s contractual duty to its insured to act in good faith regarding settlement.” The Appellate Division reiterated that even if plaintiff were a beneficiary under this godfather’s will, “plaintiff is precluded from filing a direct claim against defendant absent an assignment of rights.”

The court also made clear it disagreed with plaintiff’s “assertion on appeal that he is an implied or expressed third-party beneficiary who can pursue his claims under a common law theory of tort liability.” The record demonstrated “the essential prerequisites for a finding of common law tort liability are entirely absent. There was nothing demonstrating the insurer breached any duty to the third party/godson.

In summing up, the Appellate Division found “no basis, including public policy considerations, on which to conclude that plaintiff is a third-party beneficiary, who was owed a duty by defendant.”

Date of Decision: October 28, 2020

Yew v. Penn National Insurance, Superior Court of New Jersey Appellate Division No. A-1526-19T4, 2020 WL 6301366 (N.J. Super. Ct. App. Div. Oct. 28, 2020) (Firko, Rose, JJ.)

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