By William T. Barker & Ronald D. Kent, Partners, SNR Denton
New Jersey Manufacturers Insurance Co. v. National Casualty Co. holds that a primary insurer, sued by the excess insurer for failure to settle, is entitled to defend on the ground that the excess insurer would not have settled even had the primary insurer tendered its limits and is entitled to discovery from the excess insurer regarding that defense. The case is an interesting application of well settled principles applicable to primary/excess bad faith disputes.
The two insurers covered Grinnell Haulers, whose driver sideswiped a car occupied by Bernard and Gloria Brodsky, which came to rest on the shoulder of the road. The Brodskys got out of the car. A car driven by William Horsman hit Mr. Brodsky then the Brodsky car, which hit Mrs. Brodsky. Mr. Brodsky died and Mrs. Brodsky was seriously injured. Horsman filed for bankruptcy. The sole issues litigated in the personal injury case were allocation of fault between Grinnell and Horsman and the amount of damages.
In the end, judgment was entered for the Brodskys for $1,640,000 plus $580,322.07 in prejudgment interest. NJM paid its $1,000,000 primary limit and NCC paid $640,000 from its $4 million limit. They split payment of the prejudgment interest and brought this suit to decide responsibility for it.
As the commentary explains:
NJM initially obtained summary judgment that it was liable only for its policy limit. The Appellate Division reversed, holding that NJM could be liable in excess of its policy limit if it had breached its duty to settle. The existence of an excess policy did not reduce that duty. The evidence before the trial court on summary judgment was not adequate to determine whether the duty had been breached. The case was remanded for an evidentiary hearing.
NJM sought discovery regarding NCC’s own conduct in relation to settlement, especially after NJM tendered its own limits. NCC objected, arguing that only NJM’s conduct was at issue. The trial court overruled the objection, but NCC was granted leave to appeal that ruling. The Appellate Division now affirmed.
NCC’s suit for prejudgment interest was thus a form of bad faith claim. Its ability to sue NJM was an application of the widely followed rule (explored in the commentary) that an excess carrier that is required by the primary insurer’s bad faith to pay part of its own coverage is equitably subrogated to the rights of the insured to sue for that bad faith. But, as the commentary notes:
the excess insurer is subject to the same affirmative defenses that the insured would be subject to. One of those defenses is that the primary insurer’s failure to offer its limits was not the cause of the failure to settle, because the insured or any excess insurer would not have contributed whatever additional funds were necessary to effectuate settlement.
Lexis.com subscribers can access the complete commentary, SNR Denton on New Jersey Manufacturers Insurance Co. v. National Casualty Co.: Primary Insurer Has Right To Discovery from Excess Insurer To Assess Fault for Failure To Settle. Additional fees may be incurred. (approx. 6 pages)
If you do not have a lexis.com ID, you can purchase Insurance Emerging Issues Analysis content through our lexisONE Research Packages.
William Barker and Ronald Kent are authors of New Appleman Insurance Bad Faith Litigation, Second Edition.
Access New Appleman Insurance Bad Faith Litigation, Second Edition on lexis.com.
Access New Appleman Insurance Bad Faith Litigation, Second Edition on the bookstore.
Obtain a FREE DOWNLOAD of New Appleman Insurance Bad Faith Litigation § 2.08 Duties and Rights or Excess Insurers.
Obtain a FREE DOWNLOAD of the unenhanced version of New Jersey Manufacturers Insurance Co. v. National Casualty Co..
Lexis.com subscribers can obtain an enhanced version of New Jersey Manufacturers Insurance Co. v. National Casualty Co..