In Bridgewater Wholesalers, Inc. v. Pennsylvania Lumbermens Mutual Insurance Company, the Court denied a motion to dismiss an insured’s bad faith claim under New Jersey law. However, after conducting a conflicts of law analysis, it did dismiss plaintiff’s claims for relief under Pennsylvania’s bad faith statute.
In this case, the insured was a commercial supplier of goods that suffered losses in Hurricane Sandy. It settled a property damage claim with the insurer, but alleged that the insurer failed to make full payment on the loss of business income claim. The insurer “paid a limited amount and denied further liability despite [the insured’s] requests to obtain additional payment.” The insured subsequently sued the insurer, and alleged breach of contract, violations of the implied duty of good faith (Count II), and violation of 42 Pa. C.S. § 8371 (Count III).
The insurer filed a motion to dismiss Counts II and III. The Court refused to dismiss Count II, holding that it was “adequately pled and cannot be dismissed at this early stage.” The Court further reasoned that “[a]dditional discovery is necessary to determine whether [the insurer] had a reasonable basis for not adjusting the insurance claim.”
The insurer argued that Count III should be dismissed because the Pennsylvania statute was inapplicable and New Jersey law governed the bad faith claim. The Court conducted a conflicts of law/choice of law analysis, applying New Jersey’s legal principles as the forum state (the “most significant relationship” test). The first step was to determine if an actual conflict of laws existed. A conflict existed because the Pennsylvania and New Jersey “bad faith” standards demonstrated a clear distinction.
After the Court established a conflict existed, it determined which state had the most significant relationship to the claim, which it found to be New Jersey. Hurricane Sandy caused direct physical damage to the insured’s New Jersey facility. The insurance claim was processed in New Jersey. New Jersey is the place where the insured is incorporated and has corporate headquarters, and where the insurer is an insurance carrier. Because the Court found that New Jersey’s interest prevailed, and its insurance laws applied to the bad faith claims, the court dismissed the insured’s Pennsylvania statutory claim.