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Featured
Article
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Bad
Faith Between Insurers?
Primary
Carrier May Be Liable To Excess Carrier For
Interest Paid Over Policy
Limit |
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The
Insurable Interest
Team |
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From
Powell & Roman,
LLC
The
Insurable Interest is a newsletter by the
attorneys of Powell & Roman,
LLC. We specialize in Insurance Defense
and Insurance Coverage law in New Jersey and New
York. We strive to
keep ourselves informed of new developments
relevant to our practice and the needs of our
clients. This newsletter is our way of
sharing this valuable information with our clients
and colleagues in the insurance industry.
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Bad
Faith Between
Insurers?
Primary
Insurer May Owe Excess Insurer Nearly $600K
In Interest Above Policy Limit |
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The
New Jersey Appellate Division, in New Jersey
Manufacturers Insurance Company v. National
Casualty Company, recently considered the
circumstances under which a primary insurer may be
held liable to an excess insurer for pre-judgment
interest awarded to a plaintiff, due to the
primary insurer's alleged failure to engage in
good-faith settlement negotiations.
The
underlying personal injury matter arose from a
fatal motor vehicle accident in February
1998. New Jersey Manufacturers ("NJM") had
$1 million of primary exposure, and National
Casualty Company ("NCC") had $4 million in excess.
The underlying plaintiff demanded $3.5 million at
the time of trial, and NJM offered $750,000.00.
The case was tried, resulting in a verdict of
$1,640,000.00, which was increased by pre-judgment
interest to $1,945,000.00.
The
personal injury case was reversed based on a jury
instruction, and ultimately retried in 2004. Prior
to the second trial, NJM authorized payment of its
$1 million policy limit, but NCC requested that
they withhold their settlement offer in the hopes
that the matter would resolve under the $1 million
limit. Around the same time, the plaintiff lowered
the settlement demand to $1.5 million. In
response, NCC allegedly offered only $100,000.00,
and insisted that NJM pay the remaining $1.4
million, despite the fact that it was in excess of
the policy limit. The case did not settle and
proceeded to trial a second time on the issue of
liability only.
The
second jury's liability determination was the
same, and the original award of $1,640,000.00
stood. At this point, the pre-judgment
interest totaled $580,322.00. NJM paid its $1
million in satisfaction of the judgment and NCC
paid the $640,000.00 excess. Both parties agreed
to split the cost of the pre-judgment interest and
reserved their right to litigate the issue amongst
themselves.
NJM
then filed a declaratory judgment action seeking a
ruling that its liability was limited to the $1
million policy limit. The trial court ruled
that NJM was only responsible for the $1 million
policy limit, but the appellate court reversed and
concluded "that a primary carrier such as NJM, may
be held liable for the payment of pre-judgment
interest, even if such payment exceeds its
policy's coverage limit, if the trial court finds
that the carrier did not engage in good-faith
negotiations to settle the claim within the
policy's coverage limit." The court noted that the
existence of excess coverage did not extinguish or
diminish a primary carrier's fiduciary duty to its
insureds to take all reasonable steps to settle a
case within the scope of the primary limits.
NJM
also argued that it should not be held liable for
the pre-judgment interest because the excess
carrier's own conduct prevented the case from
settling. Since NJM could only be held
responsible for the pre-judgment interest if it
acted in bad faith, the appellate court found
NCC's own conduct relevant on the issue of the
appropriateness of NJM's actions. The matter
was then sent back to the trial court for
additional discovery on these
issues.
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It's
Your Fault, You Served
Me:
Lawsuit
Filed By Intoxicated Driver Not Barred By
Statute |
Under
the existing New Jersey
statutory scheme, a driver of a motor vehicle who
is convicted of driving while intoxicated in
connection with an accident "shall have no cause
of action for recovery of economic or non-economic
loss sustained as a result of the accident." A
fair reading of the statute would suggest that it
is absolute and makes no exceptions. However, the
Appellate Division, in Voss v. Tranquilino,
has determined that this statutory bar is not
applicable to claims asserted by a drunk driver
against the liquor establishment that serves him
alcoholic beverages before the
accident.
The
fact pattern underlying the claim is fairly simple
and routine. The plaintiff was injured when the
motorcycle that he was operating collided with a
motor vehicle. Prior to the accident, the
plaintiff had been drinking at Tiffany's
Restaurant. He filed suit against the
adverse driver, as well as Tiffany's. On summary
judgment motions at the trial level, the adverse
driver was dismissed based upon the language of
the statute. However, the application filed by the
liquor establishment was denied. The matter was
then reviewed by the Appellate
Division.
The
opinion begins with the illuminating phrase
"Although a literal reading of the statute
suggests that all claims are barred, we reach a
contrary conclusion." The court then went on to
discuss the histories of both the statute barring
drunken driving claims, and the statute commonly
known as the "Dram Shop Act" which governs liquor
liability. The court concluded that enforcing a
complete ban on liquor liability claims would
eviscerate some key portions of the Dram Shop Act
by providing some immunity to dispensers of
alcohol that serve visibly intoxicated
patrons. The court noted that the
prohibition on personal injury suits arising from
drunk driving accidents was originally viewed as a
cost-saving measure for the automobile insurance
industry. The court's decision appears to set a
bright-line limitation on the statute, by
concluding that the bar only applies to suits
against the operators of other
automobiles.
It
is interesting to note that the Dram Shop Act
became law in 1987, while the bar against claims
filed by convicted drunk drivers was not enacted
until 1997. Counsel for Tiffany's Restaurant
argued that the language "no cause of action" was
clear and made no exception for the existing
statutory claims allowed against liquor
establishments. The court responded by indicating
that there was always a "presumption against an
implied repeal" and refused to adopt that
argument.
In
the end, while repeatedly acknowledging the "plain
words" of the statutory bar, it seems that the
Appellate Division decided that it was more
important to provide a disincentive to serving
intoxicated persons, then to prevent those patrons
from filing a lawsuit.
Click Here For A Copy Of The
Court's
Opinion |
The
Exception To The Exclusion Strikes Again:
Injury
To A "Boarder" May Be Covered By Homeowner
Policy |
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Recently
in Homesite Insurance Company v. Hindman,
both the trial and appellate courts flatly
rejected a denial of coverage based on business
and rental exclusions in a homeowners
policy. Homesite Insurance Company
denied coverage to its insured, Susan Hindman, for
a dog bite claim made by a tenant. Ms.
Hindman occupied a single-family home in Sea Girt.
In March 2006, she had two "boarders" (Mary Romano
and John Romano), and one was injured by Ms.
Hindman's dog. Ms. Hindman received $300.00 a
month in rent, plus one-half of the utilities from
the Romano family. Ms. Hindman had a policy with
Homesite that incepted in August 2005. Previously,
there were times when she had more than two
boarders living in the home. At all times, Ms.
Hindman was living in the home. The relevant
policy language was as follows:
1.
Coverage
E - Personal Liability . . . to Others
do[es]
not apply to "bodily injury". . .
:
.
. . .
b.
Arising out of or in connection with a "business"
engaged in by an "insured." This exclusion applies
but is not limited to an act or omission,
regardless of its nature or circumstance,
involving a service or duty rendered, promised,
owed, or implied to be provided because of the
nature of the "business";
c.
Arising out of the rental or holding for rental of
any part of any premises by an "insured." This
exclusion does not apply to the rental or holding
for rental of an "insured
location":
.
. . .
(2)
In part for use only as a residence, unless a
single family unit is intended for use by the
occupying family to lodge more than two roomers or
boarders;
With
respect to the business exclusion, the court
barely reached the language of that particular
exclusion. The court relied heavily on the fact
that there was a more specific exclusion (the
renter's exclusion) that applied to the case. The
court explained that it could not look at one
provision in isolation when doing so would render
another provision meaningless.
With
regard to the rental exclusion, the court found
that the plain language of the provision contained
an exception to the exclusion. The court explained
that the exclusion precluded coverage for rental
of any part of the premises, "unless a
single-family unit is intended for use by
the occupied family to lodge more than two roomers
or boarders." The court found significant that at
the time of the accident Ms. Hindman only had two
boarders and that at all times since inception of
the Homesite policy she only had those two
boarders. Homesite argued that the prior years
that Ms. Hindman had three and even four boarders
should be viewed as showing her intent to rent to
more than two boarders, thus triggering the
exclusion.
The
court cited the well-settled principal that
exclusions should be narrowly construed against
the insurer, and found Homesite's creative
argument to be flatly
unpersuasive.
Click Here For A Copy Of The
Court's
Opinion |
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