New Jersey Law

NJ Supreme Court rules that a claim against insurer for bad faith can be decided by a jury.

On June 14, 2011 the New Jersey Supreme Court ruled that a claim for bad faith against an insurer for failure to settle a case within the limits of an insurance policy is to be decided by a jury. Wood v. New Jersey Manufacturers Insurance Co. involved a claim by Karen Wood who was bitten by a dog when delivering mail in a condominium complex. New Jersey Manufacturers (NJM) insured the owner of the dog and defended the case under the policy. Prior to trial an arbitrator assessed the damages as $600,000, and apportioned the award 90% to the owner of the dog and 10% to the condominium association. The arbitration award was rejected by the defendant’s insurer and the matter proceeded to trial. Prior to trial NJM offered to settle the case for $300,000; however, the offer was rejected. The plaintiff did agree to settle the case at or near the policy limits of $500,000. Prior to trial both defense counsel and NJM’s claims handler recommended payment of the policy limits, but NJM’s claims committee refused to increase the offer. In accordance with the Rova Farms decision, the plaintiff placed NJM on notice that the offer was in bad faith. The matter went to trial and the jury awared the plaintiff damages in the amount of $2,422,000. The jury also assessed 51% of the liability to the dog owner. The trial court molded the verdict so that the dog owner was responsible for $1,408,320.33 of the judgment. NJM paid the $500,000 policy limits. The defendant assigned her claim for bad faith against NJM to the plaintiff so that plaintiff could pursue NJM for the judgment in excess of the policy limits. Plaintiff filed a motion for summary judgment which was granted. On appeal, the defendant, NJM, argued that summary judgment was improper for a variety of reasons, including that the matter should have been decided by a jury. The Appellate Division remanded to the trial court for more specific findings of fact and for the trial court to determine if the matter should be decided by a jury. The N.J. Supreme Court granted certification on the sole issue of whether such claims should be decided by a jury. The Supreme Court decided that this was not an issue of whether or not there is coverage under the policy as is typically contained in a declaratory judgment action, but is a “garden variety” contract action based upon the covenant of good faith and fair dealing which is contained in all contracts. The Court determined that the claim was legal in nature, not equitable, and was, therefore, to be decided by a jury. The Court was careful to note that not every Rova Farms-bad faith case must be tried to a jury, as the parties may elect to waive the jury either by not demanding it in the first instance, or where the parties agree that a bench trial would be more fitting. Once a jury trial is demanded in a pleading in New Jersey, both parties must consent to waive the jury demand unless there is no right to a jury for the claims. It is interesting to note that only the plaintiff demanded a jury trial in the pleadings of this case, but that it was NJM that insisted on the jury trial. NJM’s position was joined by the amici curiae Insurance Council of New Jersey, and the Property Casualty Insurers Association of America. Whether the decision to assert the jury right was a strategic maneuver to avoid an adverse decision and keep the matter open for further negotiation, or was truly an assertion of a substantive right, the decision reveals the importance of assessing whether a jury demand should be included in the initial complaint or answer as the demand may be a significant factor in the overall handling and final trial of a case. DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis & Lehrer, PC is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of clients in insurance coverage. For additional information about the matters in this bulletin or in the firm’s insurance practice, please contact Steven A. Kunzman, Esq. who heads our Insurance Coverage Department.