MARCH 2015 BAD FAITH CASES: NO BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING IN FIRST PARTY CASE WHERE POLICY HAD LAPSED, AND WHERE NO EVIDENCE OF ILL MOTIVE OR BAD FAITH ON THE RECORD (New Jersey Federal)

In Shilling v. Reassure America Life Insurance Company, the beneficiary of a life insurance policy brought breach of contract and bad faith claims for the insurer’s alleged failure to pay death benefits. The insurer asserted that the policy lapsed for failure to pay premiums.  The court found in the insurer’s favor, and granted summary judgment on the breach of contract claim.

As to the bad faith claim, the court observed that there could be no breach of the covenant of good faith and fair dealing where the policy (contract) was no longer in force.  Moreover, even if the policy were somehow in force, there was no breach of the covenant of good faith and fair dealing because there was no evidence in the record to suggest the insurer acted negligently or in bad faith; the court further stating that: “A finding of bad faith against an insurer in denying an insurance claim cannot be established through simple negligence.”  The court stated further that “a defendant who acts in good faith on an honest, but mistaken, belief that her actions were justified has not breached the covenant of good faith and fair dealing.” The plaintiff is this case did not identify any evidence of ill motive or bad faith, and summary judgment was granted on this alternative basis.

Date of Decision: February 25, 2015

Shilling v. Reassure Am. Life Ins. Co., Civil Action No. 13-2359, 2015 U.S. Dist. LEXIS 22452 (D.N.J. February 25, 2015) (Rodriguez, J.)