Wadeer v. New Jersey Manufacturers Insurance Co., ___ N.J. ___ (2015).

On February 18, the New Jersey Supreme Court issued opinions in two cases that had the potential to dramatically re-shape the state’s insurance law. The court resolved both cases on limited grounds that upheld pre-existing expectations while clarifying the law prospectively, as NJCJI urged it to do in an amicus brief. The court also directed the Civil Practice Committee to take up broader policy questions for further study.

Both opinions were 5-0, and both were authored by Justice Fernandez-Vina. Justices LaVecchia and Patterson did not participate in either case.

 

Badiali v. New Jersey Manufacturers Insurance

Badiali was awarded $29,148 by arbitrators after being hit by an uninsured motorist. He had insurance from both New Jersey Manufacturers Insurance Co. (NJM) and Harleysville Insurance Co., and the arbitrators said both carriers should pay half. Harleysville paid its half of the award ($14,574), but NJM refused to pay since its policy incorporated a state law permitting insurers to reject arbitration awards greater than $15,000 and take the case to trial.

The case centered around whether it was reasonable for NJM to interpret the $15,000 threshold as applying to the whole arbitration award rather than just NJM’s portion of the award. Badiali argued NJM acted in bad faith by interpreting the policy in that way. A finding of bad faith would have allowed Badiali to collect damages and attorney’s fees in addition to the arbitration award.

The New Jersey Supreme Court ultimately agreed with the lower courts that NJM’s interpretation of the policy language was “fairly debatable.”

The court found it was reasonable for NJM to have relied on an unpublished Appellate Division decision that had upheld an appeal based on the full arbitration award, when making decisions about payouts in uninsured motorist cases. . Although unpublished rulings carry no precedential value in court, the court held that it was reasonable for NJM to rely on the unpublished decision Geiger v. New Jersey Manufacturers Insurance in making business decisions, particularly since NJM was a party in the Geiger case.

Badiali, however, is the last case in which an insurance company will be able to look to the full award in determining whether to appeal an arbitration ruling. The court clarified that prospectively, they can consider only their portion of the award when determining whether to go to trial.

 

Wadeer v. New Jersey Manufacturers Insurance

Wadeer was injured when a phantom vehicle swerved into his lane and caused him to lose control of his car and crash into two other vehicles. Wadeer received two arbitration awards against his insurer, the New Jersey Manufacturers Insurance Co. (NJM), one above the policy limit of $100,000 and one below. NJM rejected both awards, preferring to take the case to trial.

A jury awarded Wadeer more than $255,000, but the trial court reduced the award to the policy limit. Wadeer appealed the reduction, claiming NJM acted in bad faith by choosing to go to trial instead of accepting the arbitration awards. The appellate court rejected Wadeer’s claim, so Wadeer filed a new lawsuit alleging NJM acted in bad faith. NJM filed a summary judgment motion, which the trial court granted and the appellate court affirmed, holding that plaintiff’s bad faith claim was barred by the doctrines of entire controversy and res judicata. Wadeer appealed and the New Jersey Supreme Court agreed to hear the case.

The New Jersey Supreme Court affirmed the lower courts’ ruling on the limited grounds that res judicata barred the claims since Wadeer’s second suit raised the same alleged wrongs, theories of recovery, evidence, and material facts.

Most importantly, the court declined to revisit the state’s well-settled standard on bad faith, consistent with the amicus brief David Swerdlow, a partner at Windels Marx, authored on behalf of NJCJI in this case.

Having disposed of the case via res judicata, the court was able to avoid applying the entire controversy doctrine, and instead directed the Civil Practice Committee to take up three issues the court would like to see clarified:

  • The court determined that the nature of first-party bad faith claims – they can arise while the case is ongoing – makes them difficult to reconcile with the entire controversy doctrine, which requires the parties in a case to bring all the claims that they may have against one another that are at all related to the central claim at the same time. The court asked that the Civil Practice Committee determine whether the court’s rules should be changed to allow a policyholder to bring a first-party bad faith claim against an insurer after the resolution of an underlying uninsured motorist action.
  • The court also directed the Civil Practice Committee to develop an amendment to the Offer of Judgment Rule. The Rule allows an offering party to recover litigation expenses and attorneys’ fees when a pre-trial offer is rejected and the subsequent monetary award exceeds 120 percent of the offer. The court would like the Committee to clarify if the Rule is triggered by the amount the jury awards or the amount a court reduces the jury award to in order to conform to the applicable insurance policy.
  • Finally, the court asked that the Civil Practice Committee to determine whether attorney’s fees should be available to plaintiffs like Wadeer who bring a lawsuit against their insurer if they prevail.

 

NJCJI will closely follow the work of the Civil Practice Committee as it takes up each of these issues.