New Jersey Hot Potato: Insurer Who Merely Serviced Policy Can Be Liable for Bad Faith

NEW JERSEY, Oct. 20 – A U.S. District Judge in New Jersey has ruled that an insurer who does not issue, but merely services, a policy of insurance, may be held liable for bad faith conduct.

In Fischer v. National Surety Corp., Civ. No. 16-8220 (KM), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.), the insured plaintiffs had a home insurance policy “issued by Fireman’s Fund, underwritten by National Surety, and serviced by ACE American.” The insureds  complained that after promptly reporting a claim they were subject to nearly two years of dealings with various insurance company representatives, but did not receive full payment for the original loss.

After filing suit against the insurers, ACE filed a motion to dismiss bad faith and breach of contract claims, pointing out that National Surety was the insurer, and it was not, and therefore it could have not bad faith exposure to a non-insured.

U.S. District Judge Kevin McNulty denied the motion to dismiss, observing that at this state of the proceedings the precise servicing arrangements between the defendants was unclear.  Judge McNulty also dismissed ACE’s argument that without an insuring agreement, there could be no bad faith claim as s matter of law.

Citing the leading bad faith case of Pickett v. Lloyds. The court ruled:

“Pickett itself … seems to contemplate a bad faith cause of action against a party other than the primary insurance company. Indeed, it reasoned that because an agent owes a duty to the insured, the insurer must ‘owe[] an equal duty ..[a]gents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds…“[e]ven if the [insureds] fail to establish the existence of a contract with ACE American, their bad faith cause of action may still be viable.”

Fischer v. National Surety Corp., Civ. No. 16-8220 (KM), 2017 U.S. Dist. LEXIS 174267 (D.N.J. Oct. 20, 2017) (McNulty, J.)

Editor’s Note:  As insuring agreements, and servicing arrangements get more complex, new theories of non-contractual bad faith liability on the part of insurers and claims entities are likely to arise, and be based on the tort concept of the responsibility to act reasonably when a duty toward an insured  is undertaken.

Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than three decades, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800. View all posts by CJ Haddick