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Service on Counsel Appointed to Defend Insured in Underlying Action Does Not Constitute Service on Insurer in Subsequent “Bad Faith” Claim.

October 25, 2012

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In <a href=" "><em>Sandax, Inc. v. First Jersey Insurance Company</em></a>, an underlying plaintiff sued Sandax for personal injuries.  First Jersey insured Sandax under a one million dollar policy, and appointed counsel to defend Sandax.  The jury awarded plaintiff $1.125 million dollars.  Plaintiff sought to settle for Sandax’s one million dollar policy limits, but First Jersey refused.
Sandax subsequently commenced a “bad faith” action through an order to show cause.  Sandax served the order to show cause on the attorney appointed by First Jersey to defend Sandax in the underlying action.  That attorney sent several letters to the court and Sandax’s new attorney advising that he was not authorized to accept service on behalf of First Jersey in the “bad faith” action.  On the return date for the order to show cause, only counsel for Sandax appeared, and First Jersey did not submit any opposition.  As such, the trial court found First Jersey responsible for the entire excess judgment from the underlying action, and $20,840 in Sandax’s counsel fees.  The trial court denied First Jersey’s motion to vacate the decision. 
On appeal the Appellate Division held that service of the “bad faith” claim on counsel appointed by First Jersey did not constitute proper service.  The court also noted that even though First Jersey may have had notice of the claim, by not being properly served, First Jersey had been deprived of its due process right to know exactly what the claims against it were.  The court reversed and remanded for further proceedings on the bad faith claim.
The <em>Sandax</em> case is a reminder to all practitioners that courts will typically follow the letter of law when it comes to issues of proper service.
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Thanks to Andrew Marra for his contribution to this post.


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