Insurer’s Reliance on Prior Unpublished Decision Sufficient To Defeat Bad Faith Claim

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In Badiali v. New Jersey Manufacturers Insurance Group, 2015 WL 668206 (N.J. Feb. 18, 2015), the New Jersey Supreme Court found that an uninsured motorist carrier did not commit bad faith by acting in accordance with an unpublished decision from a case it previously litigated.

The policyholder was involved in a car accident with an uninsured motorist. He filed an uninsured motorist claim with his employer’s insurer and his personal insurer. The matter was arbitrated, and the policyholder was awarded $29,148.62. The personal insurer refused to pay its half of the award, $14,574.31, and demanded a trial de novo. The trial and appellate courts affirmed the arbitration award.  The employer’s insurer then paid its share. The policyholder subsequently brought suit against the personal insurer claiming bad faith in its refusal to pay the arbitration award.

The personal insurer moved for summary judgment, arguing that a prior appellate court decision from a case it previously litigated had held under the same circumstances as the present matter that the insurer was entitled to reject an arbitration award and demand a trial de novo. The trial court granted summary judgment, and the appellate court affirmed.

The New Jersey Supreme Court held that the existence of the prior unpublished appellate court decision precluded a finding of bad faith against the personal insurer. The supreme court stated that it was illogical to suggest that the personal insurer, or any corporation, could not rely on previous unpublished decisions, especially those they were involved in, to inform their business decisions. The supreme court stated that due to the existence of the prior appellate court decision involving the personal insurer, it was reasonable for the personal insurer to believe that its conduct was consistent with judicially accepted contract interpretations and corporate policies and practices.

In addition, the New Jersey Supreme Court stated that even without the existence of the prior appellate decision, the personal insurer could show it did not act in bad faith because the policy language gave the personal insurer a reasonable and valid basis to contest the arbitration award. The policy expressly provided that a party could contest an arbitration award, otherwise binding, if the award exceeded $15,000. The supreme court recognized that the award in the present matter was $29,148.62, which gave the personal insurer reason to believe that it had a valid basis to reject the award and demand a trial de novo. This was in spite of the fact that the insurer’s share of the arbitration award did not exceed $15,000.

Notwithstanding this holding, the New Jersey Supreme Court changed the rules going forward. The supreme court stated that any reference in an insurance policy to the statutory $15,000 policy limit as the basis for rejecting an arbitration award applies only to the amount that the particular insurance company is required to pay, not to the total amount of the award.