New Jersey Insurance Litigation Blog : New Jersey Insurance Lawyer & Attorney for Insurance Disputes & Bad Faith By Insurers in NJ

One situation that typically arises for insurers is when they are faced with the potential for a recovery beyond the applicable coverage limits due to New Jersey's Rova Farms doctrine.  That doctrine essentially provides that a bad faith failure by an insurer to settle a claim within the applicable policy limits exposes the insurer to liability above and beyond its policy limits.

In Wood v. New Jersey Manufacturers Insurance Company (.PDF) the New Jersey Appellate Division ruled that whether the insurer's settlement stance was in bad faith under Rova Farms should have been decided after a full evidentiary hearing or trial and not on summary judgment by the trial court.

The court concluded that the record below did not demonstrate that the insurer acted in bad faith in low-balling settlement offers, even though the insurer's assigned defense counsel and claims adjustor wanted to settle for the policy limit and the verdict was more than $900,000 over the policy limit.

The court relied in significant part on the evaluation and decisions made by NJM's major case committee which had a more bullish view of the case than defense counsel and the adjustor.

This case should reinforce for insurers the importance of having policies in place to evaluate Rova Farms demands by counsel for plaintiffs and the critical importance of not only following those policies but of documenting the reasoning and conclusions of those making the critical decisions.  In these types of significant and high-dollar cases insurers typically can turn to an experienced insurance coverage attorney to assist in the necessary evaluation.

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Continuing an unfortunate practice of closely scrutinizing applicable and unambigous insurance policy exclusions, the New Jersey Supreme Court recently held in Flomerfelt v. Cardiello (.PDF) that an insurer must defend a homeowner sued by a guest who suffered permanent injuries at a drug and alcohol party -- even if illegal drugs played a role in those injuries and despite the presence of an exclusion for claims "arising out of" the use, transfer or possession of controlled dangerous substances.

The court concluded that there was not enough evidence in the record to determine if the woman's injuries were caused by drug use, consumption of alcohol, a combination of the two, or a delay in calling for medical assistance after she passed out.

The court further held that the insurer's use of the phrase "arising out of" within the pertinent exclusion with no further qualification made the exclusion ambiguous and required an interpretation consistent with the insured's reasonable expectations.

In the court's view, for the exclusion to apply, the injuries must originate in, grow out of or have a substantial nexus to the excluded act of drug use, transfer or possession.

The court's reasoning is strained as it bends over backwards to afford coverage to the homeowner.  The court's holding can only mean that it is the "reasonable expectation" of the homeowner that if someone suffers injuries at their home due to illegal drug use that they are nevertheless entitled to a defense by their insurer despite the presence of an exclusion specifically prohibiting coverage under those circumstances.

This holding reinforces the notion in New Jersey insurance coverage litigation that no matter how well-written and unambiguous policy language may be the New Jersey Supreme Court can always find such language to be "ambiguous" in favor of the policyholder.

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In Baker v. J.J. Deluca (.PDF) the New Jersey Appellate Division recently addressed the interplay between the requirements of New Jersey's insurance statutes mandating insurance coverage and an entity's status as an interstate carrier subject to federal laws and regulations.

The entity in question, Celadon Trucking Services, was an interstate carrier.  Celadon argued that New Jersey's insurance statutes mandating that Celadon provide insurance coverage were not applicable because it was subject to federal laws and regulations prescribing Celadon's exclusive financial responsibility requirements.

Celadon is a New Jersey corporation and is self-insured for $2.5 million in compliance with regulations of the USDOT.  Celadon argued that it was not subject to New Jersey's motor vehicle statutes establishing compulsory automobile insurance.  The trial court rejected that argument concluding that the injured plaintiff at the time of the accident was using the Celadon vehicle and that Celadon was required to provide coverage for such use. 

The trial court further rejected Celadon's argument that is is subject only to the rules and regulations of the USDOT as established by the Federal Motor Carrier Safety Act and not New Jersey's insurance law.  The FMCSA did not preempt New Jersey's law and as a self-insured Celadon had established obligations under New Jersey insurance law coextensive with the obligations of those possessing liability insurance policies.

The Appellate Division affirmed and held that New Jersey's deemer statute applied to Celadon since its conduct in sending its self-insured truck into New Jersey was tantamount to transacting insurance business in New Jersey.  The Appellate Division was concerned that an entity could take advantage of its self-insurance opportunity but then escape the requirements of New Jersey insurance law even thought it wrote the policy on a vehicle it then purposely sent into New Jersey to transact business.

The Appellate Division also found unpersuasive Celadon's argument that its lack of a New Jersey self-insurance certificate should be held to shield Celadon from its obligations under the deemer statute to provide insurance coverage for the benefit of the public in New Jersey.

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 A recent decision by the New Jersey Appellate Division in Johnson v. Allstate Insurance Company (.PDF) examined the circumstances under which New Jersey's entire controversy doctrine should bar a claim for uninsured motorist benefits.

Plaintiff appealed an order of summary judgment in favor of his insurance company on his claim for uninsured motorist benefits.

The New Jersey Appellate Division concluded that the trial court acted within his discretion in deciding that Allstate Insurance Company had met its burden of showing both inexcusable conduct by the plaintiff and substantial prejudice to it sufficient to bar the claim based on the entire controversy doctrine. 

The Appellate Division noted that plaintiff's uninsured motorist claim arose from the same factual nexus as his claims against the driver of the auto who rear-ended him in a prior negligence action.  In that action, plaintiff had alleged that an unidentified auto had contributed to the accident. 

The Allstate insurance policy had a specific notice requirement relating to uninsured motorist coverage mandating that any accident be reported within 30 days where the accident arises from a hit and run by an unidentified driver.  Here, although plaintiff made that allegation, he failed to report the accident for more than five years.

The court was further troubled by the fact that Allstate's statutory right to subrogation was barred by the statute of limitations prior to any knowledge by Allstate of plaintiff's potential claim against the unidentified driver.

The Appellate Division concluded that the trial court's decision to bar plaintiff's claim filed five years after the accident in question and a year after the no cause jury verdict in his negligence claim was appropriate based on New Jersey's entire controversy doctrine.

This decision again highlights the importance of complying with notice requirements in all manner of insurance policies in the State of New Jersey.

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On June 8, 2010, a divided New Jersey Appellate Division panel in Aronberg v. Tolbert and Allstate Insurance Company (.PDF) concluded that New Jersey's ban on automobile injury suits by uninsured drivers does not extend to wrongful death claims by their heirs.

The New Jersey Legislature had adopted the total ban on such suits, part of the 1998 Automobile Insurance Cost Recovery Act ("AICRA"), to deter motorists from driving without coverage or purchasing an insurance policy in New Jersey only to obtain the required insurance card and then proceeding to ignore the insurance premiums.

The majority opinion, authored by Judge Espinosa, concluded that the AICRA ban is trumped by New Jersey's Wrongful Death Act, which permits recoveries from tortfeasors by heirs who were not responsible for the failure of their deceased relative to have the required insurance.

The majority also concluded that the statutory bar applies to survival actions but not wrongful death actions holding that such a result was fully consistent with the language and policies of the underlying statutes.  In reaching that conclusion, the majority rejected the argument raised by the insurance company that the bar should apply to both survival and wrongful death claims because both are derivative of and dependent on the death of the decedent.

The majority relied on cases holding that wrongful death actions can be viable under circumstances in which a survival action is barred.  This was due to the court's conclusion that actions under the two statutes "serve different purposes and are designed to provide a different remedy to different parties."   The majority also viewed its holding as fully consistent with the two goals inherent in the ban, i.e., to punish the uninsured driver and to create an incentive to comply with compulsory insurance laws.  In the court's view, neither of these goals is served by extending the statutory bar to wrongful death actions.

Judge Fisher dissented, concluding that the statute "unmistakably declares" that no cause of action arises when injuries are sustained by a person operating an uninsured automobile, and New Jersey's wrongful death statute, links the viability of a wrongful death claim to the victim's possession of a viable claim. 

In Judge Fisher's view, the majority opinion created the anomalous circumstance that had the decedent lived -- no matter how seriously inured or maimed and regardless of how his injuries would have impacted his dependents -- he would have no remedy, but his heir may proceed on her cause of action because he died as a result of the same circumstances. The dissent also pointed out the absence of evidence of legislative intent that the bar was not intended to apply to wrongful death actions.

In my view, Judge Fisher's reasoning makes more sense.  This issue will be decided by the New Jersey Supreme Court and bears close watching by insurers.

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On June 2, 2010, the Pacific Research Institute issued its 2010 Tort Liability Index (.PDF) , a measure of which states impose the highest, and the lowest, tort costs and risks both in absolute and relative terms.

New Jersey ranked 50th while New York ranked 49th and Pennsylvania  46th. 

Alaska, Hawaii and North Carolina were ranked 1st, 2nd and 3rd respectively.

The index measured both monetary tort losses and tort litigation risks.

The index examined tort laws as well as the judges and juries involved in implementing those laws.

The index further examined the number of tort cases filed, number of attorneys available to prosecute those claims, damage awards, and settlements.

This most recent examination of these issues reinforces the exposure facing corporations, small businesses and their insurers in New Jersey.  Significant insurance coverage litigation is filed in New Jersey in part as a result of this very real exposure to tort liability.

New Jersey needs to evaluate its tort laws and consider becoming more business and insurer friendly in order to improve its ranking.

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On June 3rd, the New Jersey Appellate Division issued a published opinion in Liberty Mutual Insurance Company v. Garden State Surgical Center (.PDF) in which it evaluated whether it had jurisdiction to review certain orders of the trial court involving arbitrations conducted under the Alternative Procedure for Dispute Resolution Act ("APDRA").

Liberty Mutual  filed suit against multiple medical providers seeking a declaratory judgment that the defendants were not properly licensed and that the claims for services in question involved illegal self-referrals.  The suit involved arbitrations under the APDRA both decided and pending.

The trial court denied the insurer's motion for leave to an amended complaint and dismissed the complaint on timeliness grounds under Rule 4:6-2(e).  The trial court later confirmed the arbitration awards at issue.

The Appellate Division recognized that its jurisdiction, under New Jersey law, turned on the meaning of N.J.S.A. 2A:23A-18(b) prohibiting any further review or appeal of the judgment or decree by the trial court.

The Appellate Division concluded that the statute in question did not bar its review.  In so holding, the New Jersey Appellate Division concluded that the statute only barred appellate review of a trial court's judgment confirming, modifying or correcting an arbitration award and not necessarily any other orders entered in such a suit.  Here, the Appellate Division concluded that the orders at issue were not confirming, modifying or correcting an arbitration award,  As a result, the court had jurisdiction.

The trial court failed to articulate why the motion to amend was denied.  As such, the Appellate Division vacated and remanded for consideration by the trial court under the proper legal standards and amplification of the reasoning behind the order.  The Appellate Division was also pointedly critical of the failure by the trial court to articulate in an oral or written the legal basis for the orders in question. 

The Appellate Division further concluded that the trial court erred under New Jersey law in concluding that the suit was time-barred.  In its view, the trial court erred by not taking into consideration that the suit sought relief as to pending and concluded arbitrations and thus could not be deemed time-barred.

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On May 27th, the New Jersey Appellate Division issued a published opinion in Tonic v. American Casualty (.PDF) addressing the applicable standard to determine if there has been an impairment of an insurer's subrogation rights in the context of a claim for underinsured motorist (UIM) benefits.

Plaintiff filed a claim for insurance coverage under his employer's automobile policy seeking UIM benefits. The issue before the court was whether, under New Jersey insurance coverage law, plaintiff had impaired the insurer's subrogation rights.  The insurer argued that plaintiff's failure to amend his complaint to name all potentially responsible parties impaired its subrogation rights.  The trial court agreed and entered summary judgment.

The Appellate Division reiterated well-established principles of New Jersey insurance coverage to the effect that a UIM claim is a contractual one arising out of the policy issued to plaintiff by his own insurer and that the insurer has subrogation rights regarding benefits it pays to its insured.

The court first held that the plaintiff had complied with the policy's notice requirements as to both the accident and his potential settlement with State Farm.  However, the insurer further argued that plaintiff was required to do more and was obligated to file suit within 2 years of the accident against the three identified potential tortfeasors.

The Appellate Division concluded, under New Jersey law as set forth in Longworth v. Van Houten, 223 N.J. Super. 174 (App. Div. 1988), that plaintiff complied with Longworth by notifying his insurer of the potential settlement with State Farm. 

The insurer further argued that plaintiff had compromised potential subrogation rights against other unidentified parties.  Although the Appellate Division recognized the facial validity of that claim, it concluded that the trial court had erroneously granted summary judgment since there were factual issues as to whether plaintiff had made reasonable efforts to identify the other parties.

The Appellate Division further instructed the trial court that it was to take into account the insurer's intimate involvement in the underlying lawsuit when determining whether the insurer's subrogation rights had been compromised.  In that regard, this case was different from the typical situation in which a UIM claimant waits until close to the trial date to notify his insurer of its potential claim or settlement with a tortfeasor.  In those cases, it is easier for the insurer to establish the necessary prejudice to its subrogation rights. 

In my view, the Appellate Division is sending a clear signal to the trial court that the insurer's involvement in and knowledge of the underlying action should be sufficient for the plaintiff to defeat any claim of prejudice.

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In Abouzaid v. Mansard Gardens v. Greater NY Mutual Insurance Company (.PDF), the New Jersey Appellate Division recently addressed whether a liability policy provided insurance coverage under New Jersey law to an insured facing a Portee claim that does not assert either physical injury or manifestation of such to the bystander-victim. 

The underlying action arose out of an apartment fire.  In one of the counts, the adult plaintiffs alleged emotional distress as a result of watching their sons catch on fire. 

The insurer disclaimed coverage for that claim.  As a result, the defendant landlord filed a declaratory judgment action seeking insurance coverage for the claim of emotional distress.

The trial court granted the landlord's motion for summary judgment against the insurer concluding that the landlord was entitled to insurance coverage under New Jersey law.

The insurer argued on appeal that the landlord was not entitled to insurance coverage under the policy based on New Jersey law because the claim at issue only sought intangible emotional injuries absent any physical manifestations.  As a result, the insurer argued that those injuries did not constitute "bodily injury" under the insurance policy.  The Appellate Division agreed and entered summary judgment for the insurer.

The Appellate Division noted that New Jersey defines the phrase "bodily injury" under insurance law and not tort law.  The court further noted the well-established elements of a Portee claim under New Jersey law.   

The Appellate Division concluded that given the failure of the claim to contain even an inference of physical harm or manifestation -- "bodily injury" under the insurance policy -- the insured was only exposed to damages from intangible, non-bodily harm.  Thus, the insurance policy did not provide coverage for that type of non-bodily injury claim, and the insured was not entitled to a defense.

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