February 2017 Bad Faith Cases: No Bad Faith Where Insurer Did Not Secretly Concede Coverage, Nor Rely Upon a Clear Error in its Denial Letter (New Jersey Federal)

The New Jersey federal court had to apply the “reasonably debatable” standard to the bad faith denial claim in this matter. The insured had two theories of bad faith liability.

The first was that the insurer’s adjuster sent an internal email conceding coverage. However, what the email actually stated was that while the damage claims may have fallen within one policy definition, it also referenced potentially applicable exclusions. “Thus, the critical email fails to support [the insured’s] repeated allegation that the email unequivocally reflects that [the insurer] believed that [its insured] had coverage. Instead, the email itself states that exclusions may apply which would negate coverage.”

Second, the insurer’s denial letter included an erroneous interpretation of the policy, affecting the exclusion. The insurer admitted it made this error. There was no bad faith, however, because the insurer never pressed forward on this position, and it “took the same position regarding denial of coverage without reference to either limitation.” By contrast: “If the facts were different, for example if [the insured] had evidence that [the insurer] denied the claims believing that they were in fact covered, but attempted to pull a sleight of hand by pointing to irrelevant policy provisions, the Court’s decision concerning bad faith could be different.” This was not the case, and summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: December 30, 2016

National Manufacturing Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 U.S. Dist. LEXIS 180145 (D.N.J. Dec. 30, 2016) (Vazquez, J.)