In a recent decision, the Appellate Division overruled a grant of Summary Judgment against an insurance carrier who chose not to settle a claim within the insureds' policy limits. While the decision respects an insurance carrier's decision to attempt settlement at a certain level, despite the possibility of an excess judgment, it reaffirms a carrier's duty to resolve a matter without exposing an insured to the risk of personal liability.
In Wood v. NJM, A-1768-08T21768-08T2 (App. Div. July 28, 2010), the Plaintiff, Karen Wood and her husband, Frederick Wood, brought a personal injury lawsuit against Alfonzia Caruso and John Critelli in addition to the Alfred Vail Mutual Association ("AVMA") for injuries sustained by Karen Wood on March 1, 2001. Wood was injured after being attacked by a dog named "Max" while delivering mail on the grounds of the AVMA complex. The dog was owned by Critelli and was kept on the premises by Caruso, Crittelli's grandmother.
The attack left Wood with injuries to her neck and back, which ultimately resulted in cervical and lumbar spine surgeries. A Workers' Compensation claim filed by Wood resulted in the payment of substantial medical benefits and disability income to Wood. By the time the personal injury action went to trial in February of 2007, the Workers Compensation lien had accrued to $280,281.17. It was recognized at the time of trial that the lien amount may increase as Wood was continuing to treat medically.
NJM issued a policy of liability insurance to Caruso, which contained limits of $500,000, and which provided coverage to Critelli as an additional insured. As a consequence, NJM provided a defense to Caruso and Critelli under the terms of the policy, who were jointly represented by a single defense attorney.
Expert testimony regarding the nature and extent of Wood's damages differed significantly. The differing opinions were based, in part, on the fact that Wood had chronic neck issues that predated the March, 2001 incident. At nonbinding arbitration, the court-appointed arbitrator evaluated Wood's gross economic and non-economic damages at$600,000. The arbitrator allocated ninety percent of the fault to Caruso, and ten percent to AVMA. The allocation yielded a net recommended award against Caruso of $540,000, a sum exceeding NJM's $500,000 policy limit.
The defense timely rejected the award and requested a trial. NJM's Major Claims Committee, the NJM adjuster assigned to the case, and the defense attorney retained by NJM to defend Caruso and Critelli, all reviewed the case following arbitration. Noting the significant treatment received by Wood, the possibility of future surgery, and the significant worker's compensation lien incurred to date, both the NJM claims adjuster and the NJM defense attorney recommended tendering NJM's full policy limits of $500,000 to Wood to settle the case.
The Major Claims Committee, however, held a different opinion regarding the value of the case. The Committee found Wood had credibility issues as she was not truthful regarding her preexisting neck condition. The Committee also believed AVMA would incur a significant portion of the liability, thus reducing the exposure to the NJM insureds. Accordingly, NJM authorized a settlement offer of $300,000.
The attorney for Wood rejected NJM's offer, and forwarded a "Rova Farms" letter, which characterized the $300,000 offer as one made in bad faith. The letter warned that if Wood obtained a judgment exceeding the $500,000 policy limits, she would look to NJM to be responsible for any excess amount. In similar fashion, personal counsel for Caruso issued a letter demanding that the carrier negotiate in good faith and use its best efforts to settle the matter within the policy limits.
In Rova Farms Resort Inc. v. Investors Ins. Co. of America, 65 N.J. 474 (1974), the Supreme Court of New Jersey recognized that an insured has the right to expect that the amount of protection he purchased will be offered in compromise where necessary to effect an end to the litigation. Accordingly, insurance carriers were bound to negotiate in good faith to resolve a matter without exposing an insured to personal liability. To do otherwise could expose the insurer to a claim of bad faith.
Nevertheless, an insurer will not be held liable unless the exercise of the carrier's judgment is found to be actually dishonest, unreasonably optimistic, otherwise in bad faith, or infected with negligence such as to impede the reaching, or having the capacity to reach, a ‘good faith' decision. The matter went to trial, and a jury returned a total verdict of $1,408,320.33 against the NJM insureds. Wood filed a bad faith claim against NJM and the trial court subsequently granted Wood's Motion for Summary Judgment on the issue, ordering NJM to pay the excess. NJM appealed the decision.
On appeal, the Appellate Division reviewed the facts and circumstances that led NJM to its decision in the context of Rova Farms. The issue before the Court was whether NJM, as a matter of law, acted in bad faith when it failed to tender the policy limits to Wood despite its own adjuster and retained attorney informing it of the distinct possibility that a verdict could exceed the policy limits.
The Appellate Division reversed the grant of Summary Judgment. It found NJM's reasons for not offering the limits were not per se unreasonable, and therefore, whether NJM acted in bad faith could not be decided as matter of law. Rather, the Court remanded the matter for a trial or plenary hearing, with reasonable discovery, so as to provide a fact finder with a full exposition of whether NJM's conduct violated its duty to act in good faith.
While the Wood decision offers insurance carriers some breathing room in determining settlement value, the Appellate Division has not abdicated the affirmative duty placed upon carriers to resolve matters within the policy limits. If a carrier should choose to offer less than the policy limits in a case where there is a potential of an excess award, the carrier should be prepared to fully defend its decision so as to ensure that it is not found to have acted in bad faith.
Daniel B. McMeen, Esq.
|
