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New Jersey Appellate Division Upholds Bad Faith Verdict

Blogs, Insurance Coverage

In an unpublished decision, the New Jersey Appellate Division has upheld a jury’s verdict on a bad faith claim, which awarded a judgment far in excess of the policy limits, including attorneys fees and costs. Bello v. Merrimack Mutual Fire Insurance Company, A-4750-10T4, 2012 WL 2848642 (July 12, 2012). Ultimately, the insurer was tagged for damages exceeding $850,000 (over a policy limit of only $100,750.).

Plaintiff’s roof and a retaining wall on his property were damaged during a storm, and he submitted a claim to his homeowner’s insurance carrier. The insurer’s adjuster retained an engineering firm, which sent a non-engineer to inspect the retaining wall. After the engineering firm concluded that the wall had not been properly maintained, the insurer denied the claim, and the homeowner sued for breach of contract. During the litigation, the insurer tendered payment of the policy limits, and the homeowner amended his complaint to assert a bad faith claim (on the basis of the insurer’s delay in resolving the claim).

An internal memorandum disclosed during discovery revealed that the adjuster was aware that the retaining wall had not been inspected by an engineer, planned to have the wall re-inspected by an engineer, and believed that wind (which was a covered peril), was at least a factor in the damage to the wall. The adjuster never had the retaining wall re-inspected, however, and the claim was denied.

Following a trial, the jury awarded $624,023.20, representing the estimated cost to replace the retaining wall, as well as $195.583.34 in attorney’s fees and $31,346.41 in costs. Notably, the jury did not offset its award with the $100,750 previously paid by the insurer. The insurer appealed, arguing that the trial court should have dismissed the bad faith claim at the close of plaintiff’s case.

The Appellate Division declined to disturb the jury’s verdict. Relying on the seminal New Jersey Supreme Court case of Pickett v. Lloyd’s, 131 N.J. 457 (1993), the Appellate Division noted that bad faith is established by showing that “no debateable reasons” exist to deny benefits, and that for a bad faith claim to exist, an insurer must have “no valid reason to delay processing the objectively determinable property damage claim and must have known or recklessly disregarded that it had no reasonable basis for denying the claim.” The Appellate Division held that there were sufficient facts to support the jury’s finding that the before denying the claim, the insurer knew the plaintiff’s retaining wall had suffered wind damage and was thus the claim was covered under the policy.

Although unreported, this decision is somewhat unique. New Jersey insurers have long-enjoyed a relatively favorable environment when it comes to bad faith litigation. Besides the verdict itself, the end result should be disturbing to insurers for two additional reasons: (1) the insurer’s tender of the policy limits during the litigation did not save it from the bad faith claim; and (2) the jury’s award did not include a setoff of its prior payment of the policy limits. It remains to be seen if Bello will pave the way for New Jersey courts to allow more of such claims to make it to the jury.