Wade Clark Mulcahy LLP

The United States District Court for the District of New Jersey recently granted an insurer’s motion to dismiss a bad faith claim where the insurer merely denied coverage and declined to settle with the plaintiff, reiterating that more than a denial of coverage is required to establish bad faith on the part of an insurer.  In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2023/01/Terrance-Minor-v.-Allstate-New-Jersey-Insurance-Co..pdf">Terrance Minor v. Allstate New Jersey Insurance Co.</a>, ABC Corp. (1-5) and John Does (1-5)</em>, the Court addressed this issue on Allstate’s motion to dismiss.  Minor was involved in an uninsured motor vehicle accident, claiming that Allstate (his vehicle’s insurer) owed him uninsured motorist coverage. Minor alleged that he attempted to resolve his claim with Allstate, but that Allstate refused to settle or go to arbitration. Minor alleged that Allstate breached the covenant of good faith and fair dealing in not settling with him.  In reaching its decision, the Court noted that to establish a breach of the duty of good faith and fair dealing under New Jersey law, a plaintiff must allege that: “(1) the defendant act[ed] in bad faith or with a malicious motive, (2) to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.” In the insurance coverage context, the court noted, establishing bad faith “requires a plaintiff to ‘show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.’”

The Court disagreed with Minor’s argument that Allstate had acted in bad faith because despite numerous discussions regarding resolution between Minor and Allstate, Allstate refused to settle or go to arbitration. In doing so, the Court also rejected the argument that an insurer’s denial of coverage inferentially establishes bad faith. The Court further noted that the complaint itself did not establish bad faith, as it failed to point to specific provisions of the insurance contract or specific dealings between the parties that could potentially allow the Court to infer that Allstate had no reasonable basis to deny coverage.

This decision emphatically reiterates the standard on NJ bad faith.  First, it requires a plaintiff to show specificity within the complaint, and that plaintiff avers specific provisions of the insurance contract or specific dealings between the parties rise to the level of bad faith. Second, it demonstrates that an insurer’s refusal to settle or arbitrate a claim, even after numerous discussions with the other parties, is not enough, standing alone, to establish bad faith.

Thanks to Erin Gallagher for her assistance in this article.  Should you have any questions, please contact <a href="tbracken@wcmlaw.com">Tom Bracken</a>.