In Rothschild v. Foremost Ins. Co., the court was faced with the basic issue of interpreting what the carrier was required to pay for a property loss in light of an “other insurance” provision. The two insurers agreed that the defendant insurer’s pro rata share, based on total available insurance between the two was 55%. The insured argued that the defendant carrier had to pay its pro rata percentage (55%) of the total loss, whereas the carrier argued it only had to pay that same pro rata share of its policy limits. This made about a $35,000 difference. The insured brought a breach of contract claim, a bad faith claim and a claim for violation of New Jersey’s statutory Insurance Trade Practices Act, N.J.S.A. 17:29B-4.
The court ultimately agreed with the insured’s interpretation of the policy language on the base figure for the pro rata share, but also found that the carrier’s argument was reasonable. Thus, there was no bad faith. In the first party context, bad faith requires a denial of a benefit or processing delay, the absence of a reasonable basis for the denial or delay, and a knowing or reckless indifference of the unreasonableness of the position. Mere negligence or mistake is not enough to establish bad faith. In this case, the carrier’s reading was not unreasonable and there was a dearth of case law on point providing guidance on the issue. Thus, “the mere fact that the Court holds in favor of Plaintiffs’ interpretation of the contract does not show that Defendant lacked a reasonable basis for denying Plaintiffs benefits of the policy.”
Finally, the insured sought to bring a private cause of action under the ITPA. The court observed that the law is well established that this statute does not provide a private cause of action.
Date of Decision: August 31, 2009
Rothschild v. Foremost Ins. Co., 653 F. Supp. 2d 526 (D.N.J. 2009) (Wolfson, J.)