This case involves the New Jersey Supreme Court considering an insurer’s right to a jury trial where there’s an allegation of bad faith on the part of the insurer for failing to settle a lawsuit against its insured. If the insurer failed in bad faith to settle the lawsuit within policy limits where it could have done so, and if there’s a verdict against the insured in excess of policy limits, under New Jersey law the insurer may be liable for the excess verdict. Exciting, eh? If you’d like to read the decision you can find it here.
Wood was a USPS mail carrier and was seriously injured during a dog attack while she was on her mail route. She sued the dog’s owner and others, including the condominium association where the unit housing the dog was located. Although the defendants’ attorney recommended to the insurer that the case be settled for the limits of the $500,000 policy issued by New Jersey Manufacturers Insurance Company, the insurer refused, only offering $300,000. The case went to trial and the jury awarded Wood over $2 million in damages. The insured, which didn’t have the money necessary to pay the verdict, assigned its rights under the insurance policy to Wood, who then sued the insurer.
This is a classic example of a claim for bad faith failure to settle within policy limits, where an insurer’s refusal to resolve the case within the limits of the policy places its insured at risk for an excess judgment. The big question in these cases is whether the insurer, prior to trial, reasonably analyzed the risk to its insured of a verdict that would exceed the insured’s policy limits. In New Jersey, this situation is governed by the case of Rova Farms Resort v. Investors Insurance Co. of America, 65 N.J. 474 (1974). The court in that case held that an insurer’s bad faith failure to settle a claim within policy limits may render the insurer liable for the entire judgment, including the excess above the policy limits.
The issue in Wood was a narrow one – Wood argued that the issue of whether the insurer acted in bad faith should be tried to the trial judge of the underlying case that resulted in the excess verdict, not to a new jury, which would require a new trial. As a practical matter this makes a certain amount of sense, given that the trial judge heard all of the evidence relating to the insured’s liability and is in a good position to be able to determine, with a little more information, whether the insurer had a reasonable position prior to trial as to the likelihood the insured would be found liable for an amount in excess of policy limits.
Wood based her argument on language in Rova Farms referring to an insurer’s fiduciary duties to its insured and noted that there is no right to a jury trial on equitable claims such as breach of fiduciary duty. The insurer argued, however, that Wood’s claim was nothing more than a “garden variety” breach of contract claim to which the jury trial right attached.
The court agreed with the insurer, holding that because the case involved at its core an allegation that the insurer breached the implied covenant of good faith and fair dealing contained in every contract, it was a breach of contract claim and the insurer had a right to a jury trial. I found the court’s decision somewhat unsatisfactory, as there didn’t seem to be much analysis of the insured’s position that this was a breach of fiduciary duty claim, not simply a breach of contract claim. After all, there didn’t seem to be any coverage question involved, as the insurer was defending its insured and was apparently in agreement that there was coverage. The real question seemed to be whether the insurer placed its own interest ahead of that of its insured, which is a breach of fiduciary duty claim. The court brushed this argument aside, however. The case now goes back to the trial court for a jury trial on Wood’s bad faith claim.
This was a pretty close case in my book. I’m a firm believer in the right to a jury trial, but Wood’s argument that this was really a case of the insurer putting its own financial interests ahead of those of its insured seemed to have merit, making this at its true core a breach of fiduciary claim for which there’s no jury trial right. When you think of the judicial resources that could be saved by having the trial judge decide this type of case, it makes even more sense — otherwise you have another full-blown trial. Of course, the Wood judges are much more familiar with New Jersey insurance law than I am, so I’ll have to defer to them. It makes me wonder how the Washington Supreme Court would rule on this, though. Of course, maybe they already have — someone should research that…
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