SNR Denton on Is There a Right To Jury Trial in a Bad Faith Failure To Settle Case: Wood v. New Jersey Manufacturers Insurance Co.

William Barker   By William T. Barker, Partner, SNR Denton

In Wood v. New Jersey Manufacturers Insurance Co. the New Jersey Supreme Court, addressing a little-litigated issue, held that there is a right to jury trial in a bad faith failure to settle case. [1] This commentary examines that holding.

NJM insured Caruso, who were sued by Wood.  NJM refused an opportunity to settle within limits and a large excess judgment resulted.  Caruso assigned her rights to Wood, who sued NJM.  She demanded a jury trial but later moved for moved for summary judgment, which the court granted.  The Supreme Court described the reasoning in support of that judgment as follows:

Commenting on the strength and merit of defendant's opposition to plaintiff's motion for summary judgment, the trial court emphasized that "[a] proper analysis of this claim which kept in mind the interest of the insured would require something more specific than a generic statement that this claim was submitted to a committee who approved [the $300,000 settlement offer]." The trial court noted that defendant "proceeded to trial without an expert witness as to economic loss[,]" and that "[t]here was no evidence adduced at trial that plaintiff's injuries were preexisting or that she had lied about them." Characterizing defendant's actions as "cavalier," the trial court described defendant's settlement posture as "a take-it-or-leave-it offer based on assumptions [defendant] never attempted to prove at trial." The trial court concluded that "[t]he record reflects that there were numerous attempts to settle the case within the policy limits[,] which were rejected. In the final analysis, [defendant] gambled on a trial contrary to the interests of its insured."

The Appellate Division found material issues of fact on bad faith and remanded for trial.  It also left the issue of jury trial for consideration by the trial court.  The Supreme Court granted certification on the jury trial issue and held that there was a right to jury trial.

Wood argued, based on language in the leading New Jersey cases on the duty to settle, that his duty was a form of fiduciary duty, and that such a duty is primarily equitable in nature, but the Supreme Court rejected the argument that this precluded a right to jury trial.

The Supreme Court held that a

Rova Farms bad faith claim is a garden-variety action at law that requires that she prove that defendant breached its insurance contract by its failure in bad faith to settle plaintiff's original personal injury suit against defendant's insureds. Despite language in the case law referring to the relationship between the insurer and its insured as something akin to a "fiduciary relationship," it remains unmistakable that, at its core, a Rova Farms bad faith claim is a simple breach of contract claim, one that perforce must assert that, by failing in bad faith to compromise a claim within the policy limits prior to a verdict, the insurer has breached the implied contractual covenant of good faith and fair dealing and, therefore, should be liable for the entire judgment and not just to the extent of the policy limits.

This commentary reviews the limited authority outside New Jersey and offers additional reasons why the conclusion was correct.

[1] Accord Douglas v. United States Fid. & Guar. Co., 81 N.H. 371, ___ [127 A. 708, 710] (1924).

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William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute. Mr. Barker is the co- author of New Appleman Insurance Bad Faith Litigation, Second Edition.

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