A recent decision by a New Jersey Appellate Court clarifies both the scope of a New Jersey insurer’s duty of good faith in resolving a first-party uninsured motorist claim and the way in which claims for breach of that duty must be raised.
The plaintiff in Wadeer v. New Jersey Manufacturers Ins. Co., A-3206-10T4 (N.J. Super. Ct. App. Div., Dec. 13, 2012), was severely injured when a “phantom vehicle” swerved into his lane and made him lose control of his car. He was insured under an auto policy with $100,000 in UM coverage, and he asked his insurer to pay that amount. The insurer did not co-operate: It refused his demand, it rejected two arbitration awards (one within policy limits, one for more), it rejected a $95,000 offer of judgment, and it never made a settlement offer of its own. In effect, the insurer forced the plaintiff to try the case. He did, and a jury awarded him $255,000, but the trial court molded the verdict to the $100,000 policy limit.
The plaintiff appealed, and the appellate court found that the trial court had properly limited the award to the policy limit, notwithstanding the plaintiff’s argument that the insurer had acted in bad faith. In making that argument, the court stated, plaintiff was attempting to create a new cause of action “providing a remedy in the UM context similar to that provided on third-party claims.” Wadeer v. New Jersey Manufacturers Ins. Co., No. A-1342-07T21342-07T2 (N.J. Super. Ct. App. Div. April 2, 2009).
Three months later, the plaintiff filed a separate bad faith action. The trial court in that second case granted the insurer’s motion for summary judgment, holding that the new claim was barred by the “entire controversy” doctrine, and the plaintiff appealed again.
The Appellate Division’s opinion in the second case expanded on its earlier discussion of the insurer’s duty. It explained than an insurer that is negotiating a third-party claim has a “positive fiduciary duty to take the initiative and attempt to negotiate a settlement within the policy coverage.” Breach of that duty exposes the insurer to liability for the amount of an excess judgment.
An insurer confronted with a first-party claim also owes a duty of good faith and fair dealing, the court noted, but it does not have the same responsibility to resolve the claim within policy limits. To the extent plaintiff sought as a remedy the full, excess amount of the jury’s award, therefore, the court held that “he seeks a remedy to which he is not entitled.”
The court also rejected the plaintiff’s argument about the “entire controversy” doctrine, which prohibits the serial litigation of claims that are part of a single legal controversy. The plaintiff argued that the doctrine could not bar his bad faith claim, because that claim did not ripen until the jury returned its verdict on the underlying insurance claim. The plaintiff assumed, in other words, that the insurer’s failure to settle within policy limits was an element of his claim for bad faith Because the insurer actually had no duty to settle a UM claim within policy limits, that argument failed.
Alternatively, to the extent plaintiff’s claim was based on the insurer’s failure to exercise any good faith in resolving his claim, and the plaintiff was seeking consequential damages for that failure (as opposed to the amount of the excess verdict), the appellate court found that the plaintiff would have been aware of all the relevant facts at the time he brought the underlying action, and that “a plaintiff who files a UM claim [is also required] to file in the same action an existing ‘bad faith’ claim.” In this case, the court noted that the plaintiff had threatened to pursue a bad faith case before filing the underlying action. Consequently, the court found no unfairness in applying the “entire controversy” doctrine to his second case.