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N.J. Supreme Court Holds Insurer’s Reliance on an Unpublished Decision Precluded Bad Faith

Blogs, Insurance Coverage

On February 18, 2015, the New Jersey Supreme Court held that an insurer’s reliance on an unpublished decision in making its legal and business decisions precluded a finding of bad faith. Augustine W. Badiali v. New Jersey Manufacturers Insurance Group,No. 071931, 2015 WL 668206 (N.J. Feb. 18, 2015).

After sustaining injury in a motor vehicle accident with an uninsured motorist, plaintiff Augustine W. Badiali (“Plaintiff”) initiated a claim with his insurer, New Jersey Manufacturers Insurance Group (“NJM”) and his employer’s insurer. The claim went to arbitration and Plaintiff received an award totaling $29,148.62 in his favor, which the insurers were ordered to split evenly. NJM rejected the arbitration award and demanded a trial de novo, relying on policy language which provided that “if the arbitration award exceeds the minimum limit for liability of $15,000 provided by New Jersey statute, either party may demand the right to a trial by jury on all issues.” 

After the trial court rejected NJM’s demand for a trial, upheld the arbitration award, and NJM paid its share of the judgment, Plaintiff sued NJM for breach of contract, bad faith and consumer fraud. The trial court granted summary judgment in NJM’s favor as to all counts on the grounds that NJM’s position was “fairly debatable” based on the policy language and NJM’s reliance on an unpublished Appellate Division decision involving nearly identical facts, and to which NJM was also a party. In that case, the Appellate Division held that the insurer was entitled to reject the arbitration award at issue and demand a trial de novo. Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App. Div. Mar. 22, 2004).

The Appellate Division affirmed the trial court decision as did the New Jersey Supreme Court. In affirming, New Jersey Supreme Court reiterated that in order to establish a bad faith claim for denial of benefits, a plaintiff must show that no debatable reasons existed for the denial. With that in mind, the Court found that NJM had fairly debatable reasons for rejecting the arbitration award, and thus, NJM had not acted in bad faith. In particular, the Court held that “the mere existence of an unpublished opinion will allow a party to avoid a finding of bad faith for actions taken in accordance with its holding.” 

The Court explained that “it is illogical to suggest that NJM, or any corporation, cannot rely on previous unpublished opinions – especially those in which they were specifically involved – in forming their business decisions.” The Court also held that, even without NJM’s reliance on the unpublished decision, NJM established that it had “fairly debatable reasons” for its legal and business decisions based on a reasonable interpretation of the policy language and on the fact that this case was distinguishable from other contrary legal precedent. 

Notably, the Court reached the ruling described above, despite the fact that it essentially reversed the Greiger decision, holding that where an insurance policy provides that an arbitration award which exceeds the statutory liability limit may be rejected, this applies only to the amount the insurance company is actually required to pay, not to the total amount of the award.