Insurance Coverage: Denial And Bad Faith

By: Donna Russo, Esq.

New Jersey law has recognized bad faith claims against insurance companies denying coverage since 1993 when the NJ Supreme Court decided Pickett v. Lloyd’s, 131 NJ 457 (1993).  However, a bad faith claim is limited because the insured must prove that “no debatable reasons existed for denial of the benefits”. This is not an easy standard to meet.

In a recent case, the Appellate Division applied this standard to a specific set of facts and upheld a jury verdict of bad faith, Jeffrey M Bello v. Merrimack Mutual Fire Insurance Company, a Division of the Andover Companies and Cusack Co., Inc., A-4750-10 T4 (July 12, 2012).  The facts of this case illustrate the proofs necessary to be successful on a bad faith claim.

The insured,  Jeffrey M. Bello, sustained damage to the property’s roof and the retaining wall  as a result of a violent storm in March, 2008.  The roof damage was covered.  As to the retaining wall, Merrimack Mutual sent an adjuster, Tomas D. Cusack to inspect the damage.  Mr. Cusack arranged for the engineering firm of Peter Vallas Associates, Inc. to assess the damaged wall.  In April, 2008, an investigator, not an engineer, performed the inspection for Peter Vallas Associates and found that the damage to the retaining wall was a result of root growth and vegetation which compromised the integrity of the wall and that the wall would not have been compromised or damaged if it was not structurally weakened prior to the storm.  Based on this opinion, Merrimack Mutual denied coverage for the damage to the retaining wall.  Plaintiff challenged the denial and obtained his own estimates that found that he had maintained the vegetation and the growth was not significant. In September, 2008, a Vallas engineer attempted to perform an inspection and was chased away by the plaintiff.  Plaintiff filed an internal appeal in October, 2008.  Merrimack’s parent company reversed the denial.  Plaintiff permitted a re-inspection and the claim was valued at $108,813 and reduced by 43% due to depreciation.  Plaintiff returned the check and submitted estimates for $425,688 for the wall and $198,335.20 for the landscaping to correct the storm damage to his backyard.

Plaintiff filed suit and the court compelled plaintiff to submit to the appraisal process under the terms of the policy. Plaintiff was tendered the amount of $100,750, the policy limits.

Plaintiff filed suit alleging that Merrimack’s bad faith delayed the resolution of the claim.  The jury award plaintiff $624,023.20, representing the total estimated cost to replace the wall and landscape plaintiff’s yard plus $195,583.34 in attorney’s fees and $31,346.41 in costs.

Defendant Merrimack appealed.  The Appellate Division found that there were sufficient facts supporting a jury finding that defendant knew the wall suffered wind damage, a covered event, thus making the denial of coverage unreasonable.  The Court focused on Merrimack’s reliance on a report from an investigator who was not an engineer and Merrimack  waiting until after the second denial to have the wall reinspected.