Court Declines to Dismiss Request for Attorney’s Fees as Part of Consequential Damages to Bad Faith Claim in Sandy Coverage Dispute

In Breitman v. National Surety Corporation, the court was faced with the question of whether an insured could request attorney’s fees as part of consequential damages to a claim of bad faith.

The case arose out of a Hurricane Sandy coverage dispute in which the insurer originally denied the insured’s claim for loss and damage to the insured’s property caused by flood, not wind, as a result of Hurricane Sandy. The insured alleged that the insurer “conducted an improper adjustment, wrongfully denied his claim, and delayed payment.” The insured filed suit and set forth claims for breach of contract, breach of the duty of good faith and fair dealing/bad faith, and violations of the New Jersey Consumer Fraud Act (“NJCFA”). The insurer moved to dismiss the NJCFA claim and strike the request for attorney’s fees from the bad faith claim.

The court first found that the facts alleged by the insured did not yield a plausible claim for fraud, or that the insurer misrepresented, deceived, or misled the insured in the performance of its obligations. However, the court refused to strike the insured’s request for attorney’s fees as part of his claim for breach of the duty of good faith, and noted that under New Jersey law, “attorney’s fees are recoverable where provided for under a court rule or statute, pursuant to a contract, or where counsel feels are a traditional element of damages in a particular cause of action.” The court acknowledged that New Jersey law does not allow for an insured to recover attorney’s fees in a direct suit against his insurer for coverage, but explained that fees may be recoverable on a bad faith claim because “consequential economic damages are part of the damages award in a cause of action for bad faith.” While the insurer urged the court to hold otherwise, the court stated that it was not necessary to conclusively decide this issue at such an early stage in the litigation. As the insured was able to plausibly show that fees may be part of the consequential damages on a claim of bad faith, the court permitted the request to remain, and reasoned that the issue of damages would be revisited if the insured later proved his claim against the insurer.