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Newsletter -
Summer 2010
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It is well established that, when an insurer does not engage in good faith settlement negotiations prior to a judgment award, the insurer may be liable to a prevailing party for the full amount of the judgment against its insured, including the judgment amount over the policy’s coverage limit. It is also well established that the insurer may avoid such liability despite its failure to engage in good faith settlement negotiations if the insurer can establish that there was no realistic possibility of settlement within the policy limits and the insured would not have contributed toward the settlement amount. (See Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474, 496 (1974)).
Recently, the New Jersey Appellate Court determined that, when a primary insurer does not engage in good faith settlement negotiations prior to a judgment award, the insurer may also be liable to an excess carrier. In these instances, the primary insurer would be liable for prejudgment interest. Similar to the exception noted above, the insurer may avoid such liability despite its failure to engage in good faith settlement negotiations if the insurer can establish that there was no realistic possibility of settlement within the policy limits and the excess insurer would not have contributed toward the settlement amount. (See New Jersey Manufacturers Insurance Co. v. National Casualty Company, 2010 WL 1706012).
The case that brought about this decision, New Jersey Manufacturers Insurance Co. v. National Casualty Company, 2010 WL 1706012, involved a lawsuit brought by New Jersey Manufacturers Insurance Co. (“NJM”) against National Casualty Company (“NCC”) to resolve which was liable for the prejudgment interest that was awarded to a plaintiff against NJM’s insured in an underlying lawsuit. By way of background, the underlying lawsuit was between the plaintiffs, Mrs. Brodsky and the estate of her deceased husband (“the Brodskys”), and the defendants, Grinnell Hauler (“Grinnell”) and William Horsman (“Horsman”). While driving their car in the early morning hours, the Brodskys were sideswiped by a vehicle driven by an employee of Grinnell. This caused the Brodskys’ car to come to a stop on the shoulder of a highway facing oncoming traffic. Having exited their car, the Brodskys were standing on the shoulder when a car driven by Horsman first hit Mr. Brodsky, and then hit their car, causing it to hit Mrs. Brodsky. Mr. Brodsky died soon thereafter, and Mrs. Brodsky incurred severe permanent injuries. After two trials, the Brodsky’s were awarded a portion of their damages plus prejudgment interest from Grinnell (Horsman had filed for bankruptcy).
Grinnell had primary insurance coverage with NJM of $1 million, and had excess coverage with NCC for an additional $4 million. NJM paid the judgment against Grinnell up to its policy limits, and NCC paid the remainder, including the prejudgment interest. The insurers agreed, however, that they would determine at a later date which was responsible for the prejudgment interest. That dispute formed the basis for the lawsuit between them.
During the course of the litigation between the carriers, it was revealed that NJM had been willing to offer the full amount of its policy in an attempt to settle the underlying case with the Brodskys. It was also revealed that the Brodskys were seeking the full amount of the NJM policy, in addition to more money from the excess carrier. NCC was in a position to contribute toward the settlement to resolve the case, but instead requested NJM not to offer its policy limits in an attempt to get the Brodskys to settle for less than NJM’s policy. The trial court determined that NJM was only liable for its $1 million policy limit. On appeal, however, the Appellate Court held that if NJM had not engaged in good faith settlement negotiations, it is liable for the prejudgment interest. The Court also held that NJM was entitled to conduct discovery in order to demonstrate, as an affirmative defense, that despite any failure to engage in good faith settlement negotiations, there was no realistic possibility of settling within the policy limits and the excess insurer would not contribute toward the settlement the amount.
The decision in this case sends a clear message to both primary and excess insurers to conduct settlement negotiations in good faith. Failure to do so may result in liability for prejudgment interest.
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