PENN NATIONAL INSURANCE COMPANY VS. GROUP C COMMUNICATIONS, INC. (L-0134-09, MONMOUTH COUNTY AND STATEWIDE)(CONSOLIDATED) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NOS. A-0754-15T1
A-0808-15T1
PENN NATIONAL INSURANCE
COMPANY,
Plaintiff-Appellant,
v.
GROUP C COMMUNICATIONS, INC.,
Defendant-Respondent.
__________________________________
G.M. SIGN, INC., individually
and on behalf of a certified
class as judgment creditors of
GROUP C COMMUNICATIONS, INC.,
Intervenor-Respondent.
______________________________________
PENN NATIONAL INSURANCE
COMPANY,
Plaintiff-Respondent,
v.
GROUP C COMMUNICATIONS, INC.,
Defendant-Appellant.
__________________________________
G.M. SIGN, INC., individually
and on behalf of a certified
class as judgment creditors of
GROUP C COMMUNICATIONS, INC.,
Intervenor-Appellant.
______________________________________
Argued April 16, 2018 – Decided July 31, 2018
Before Judges Messano, O'Connor, and Vernoia.
On appeal from Superior Court of New Jersey,
Law Division, Monmouth County, Docket No.
L-0134-09.
Richard C. Mason argued the cause for
appellant in A-0754-15 (Cozen O'Connor and
Kinney Lisovicz Reilly & Wolff, PC, attorneys;
Kevin E. Wolff and Richard C. Mason, of
counsel and on the briefs; Timothy P. Smith
and Kathleen J. Devlin, on the briefs).
Jeffrey A. Berman (Anderson & Wanca) of the
Illinois bar, admitted pro hac vice, argued
the cause for respondents in A-0754-15
(Giordano, Halleran & Ciesla, PC, and Jeffrey
A. Berman, attorneys; Michael J. Canning, of
counsel and on the brief; Jeffrey A. Berman
and Matthew N. Fiorovanti, on the brief).
Phillip Bock (Bock, Hatch, Lewis and Oppenheim,
LLC) of the Illinois bar, admitted pro hac
vice, argued the cause for appellants in A-
0808-15 (Giordano, Halleran & Ciesla, PC, and
Phillip Bock, attorneys; Michael J. Canning,
of counsel and on the brief; Jeffrey A. Berman
and Matthew N. Fiorovanti, on the brief).
Richard C. Mason argued the cause for
respondent in A-0808-15 (Cozen O'Connor and
Kinney Lisovicz Reilly & Wolff, PC, attorneys;
Richard C. Mason and Samantha M. Evans, of
counsel and on the briefs; Kevin E. Wolff,
2 A-0754-15T1
Timothy P. Smith, and Kathleen J. Devlin, on
the briefs).
PER CURIAM
During all times relevant to these appeals, Penn National
Insurance Company (Penn National) insured Group C Communications
Inc. (Group C), a New Jersey corporation, pursuant to a business
owner's liability policy (primary policy) and a commercial
umbrella policy (umbrella policy). The primary policy provided
$1 million in liability coverage "per occurrence," with an
aggregate policy limit of $2 million. The umbrella policy provided
additional liability coverage of $2 million per occurrence and in
the aggregate.
Siblings Edgar Theodore Coene (Ted) and Susan Coene (Susan)1
served as co-presidents of Group C, which provided information and
counsel to businesses regarding their facilities and any
contemplated relocation, expansion or consolidation. Among its
activities, Group C produced a trade show and conference known as
the TFM Show. The 2005 TFM Show was held in Chicago, and, in his
advanced planning, Ted met in 2002 with a representative from the
Chicago Convention and Tourism Bureau (CCTB) who assured him that
the CCTB could help "grow [the] show" by providing local mailing,
1
We use first names to avoid confusion and apologize for the
informality.
3 A-0754-15T1
fax and phone lists for Group C's promotion to both exhibitors and
attendees.
Group C acquired those lists from the CCTB and hired Quick
Link Information Services, Inc. (Quick Link) to send promotional
fliers by fax to those on the lists. Quick Link did so on seven
occasions between December 6, 2004 and January 26, 2006, with the
last set of faxes advising recipients of the anticipated 2006 show
Group C was holding again in Chicago in April.
G.M. Sign Inc. (G.M.), an Illinois company, received an
unsolicited fax from Group C on April 15, 2005. In July 2008,
G.M. filed a class action suit in state court in Illinois (the
underlying action) alleging, among other things, Group C violated
the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227.
The TCPA makes it unlawful "to use any telephone facsimile machine
. . . to send, to a telephone facsimile machine, an unsolicited
advertisement," unless certain statutory exceptions apply. 47
U.S.C. § 227(b)(1)(C). The TCPA provides a private right of action
to recover the greater of actual damages or $500 "for each . . .
violation." Id. at § 277(b)(3).
We described what happened thereafter in our prior opinion.
Penn Nat'l Ins. Co. v. Group C Commc'ns, Inc., No. A-2813-09 (App.
Div. Aug. 1, 2011) (slip op. at 8-10). The Law Division granted
Penn National summary judgment declaring it had no duty to defend
4 A-0754-15T1
or indemnify Group C under the policies. Id. at 10. Group C
appealed. Although Penn National had agreed to provide a defense
to Group C under a reservation of rights, in June 2010, as a result
of the Law Division's judgment, Penn National withdrew its
representation of Group C in the underlying action.
In October 2010, G.M. moved for summary judgment in the
underlying action, which had been removed to the federal district
court for the Northern District of Illinois. Group C did not
retain counsel or respond to the motion. On January 10, 2011, the
district court granted G.M.'s motion and entered judgment against
Group C for $18,966,000 ($500 for each of 37,932 unsolicited faxes
sent by Quick Link).2
On August 1, 2011, we reversed the Law Division's grant of
summary judgement to Penn National, concluding, in part, there was
a genuine issue of material fact as to whether there was coverage
under both the advertising and property damage insuring provisions
of the policies. Id. at 20, 25. We remanded the matter to the
Law Division for further proceedings. Id. at 25. The Supreme
Court denied Penn National's petition for certification. 209 N.J.
96 (2011).
2
The court amended the judgment to $18,921,000 after considering
class members who had opted out.
5 A-0754-15T1
Thereafter, Group C assigned its rights to G.M. On remand,
Group C moved to file an amended answer and counterclaim alleging
Penn National acted in bad faith by failing to settle the
underlying action.3 G.M. also moved to intervene in the
declaratory judgment action, asserting that Penn National had
acted in bad faith. The Law Division judge granted both motions
and entered a conforming order.4
We discuss the interim motion practice and the judge's pre-
trial rulings as necessary below, but for now, it suffices to say
that by the time of the trial before a different judge and a jury,
Group C's bad faith claims were no longer in the case. The issues
left for the jury to decide were: whether G.M. and other class
members suffered "property damage" as defined in the policies;
whether the "property damage" was the result of one or more than
one "occurrence"; and whether Group C acted with subjective intent
to cause harm to the fax recipients such that coverage was excluded
3
Earlier in the litigation, before the grant of summary judgment
to Penn National, Group C successfully moved to amend its
counterclaim but never actually filed an amended counterclaim
alleging bad faith in failing to settle the underlying action.
4
Except when necessary to differentiate between respondents-
cross-appellants Group C and G.M., we refer to them simply as
Group C.
6 A-0754-15T1
under the policies' "expected or intended" injury exclusion.5
The jury returned a verdict in favor of Group C, finding
that: (1) G.M. and the other class members suffered property
damage as defined in the policies; (2) Group C had not subjectively
expected or intended this damage; and (3) more than one occurrence
caused the damage. The judge denied Penn National's subsequent
motion for judgment notwithstanding the verdict (JNOV) or a new
trial. She granted Group C's application for counsel fees pursuant
to Rule 4:42-9(a)(6), awarding $847,110.80 in fees, which was
$923,369.26 less than what was sought. On September 3, 2015, the
court entered final judgment in favor of Group C for $5,485,129.61
— $4,389,500 in damages, $248,518.81 in prejudgment interest, and
$847,110.80 in counsel fees — plus post-judgment interest.
Penn National appealed (A-0754-15), and Group C filed a cross-
appeal (A-0808-15). The appeals were argued back-to-back, and we
have consolidated them now to issue a single opinion.
As to A-0754-15
Section A(1)(a) of the primary policy required Penn National
to "pay those sums that the insured [became] legally obligated to
pay as damages because of . . . 'property damage,' . . . to which
5
Although we previously stated the policies' "advertising injury
provisions would appear to be the most logical sources of any
coverage," id. at 14, Group C abandoned its "advertising injury"
claim prior to trial.
7 A-0754-15T1
th[e] insurance applie[d]." "Property damage" was defined in
section F(15) as:
a. Physical injury to tangible property,
including all resulting loss of use of that
property. All such loss of use shall be deemed
to occur at the time of the physical injury
that caused it; or
b. Loss of use of tangible property that is
not physically injured. All such loss of use
shall be deemed to occur at the time of the
"occurrence" that caused it.
Section A(1)(b)(1)(a) provided coverage for "property damage"
caused by an "occurrence," which was defined in section F(12) as
"an accident, including continuous or repeated exposure to
substantially the same general harmful conditions." Section
B(1)(a) excluded "property damage" that was "expected or intended
from the standpoint of the insured."
Section I(1) of the umbrella policy provided that Penn
National would "pay on behalf of the insured the 'ultimate net
loss' in excess of the 'applicable underlying limit' which the
insured becomes legally obligated to pay as damages because
of . . . Property Damage Liability." The definitions of "property
damage" and "occurrence," and the exclusion for "property damage"
that was "expected or intended from the standpoint of the insured,"
were the same as in the primary policy.
8 A-0754-15T1
I.
Penn National argues the judge erred in denying its motions
for a directed verdict at the close of Group C's case and for JNOV
because there was no evidence G.M. and other members of the class
suffered "property damage" as defined by the policies.
George Matiasek, the owner of G.M., testified at trial. He
identified the fax he received from Quick Link and claimed that
such unsolicited faxes caused loss of time, tied up his fax machine
making it unavailable for legitimate business faxes, and possibly
wasted ink and toner. His company relied heavily on a fax machine
for submitting bids and receiving signed orders, and on one
occasion, he lost an order because faxes were delayed. Matiasek
did not know any of the other class members in the underlying
action, but said they must have been in the class because of a
"successful [fax] transmission," which Matiasek defined as having
"received" a fax.6 However, Matiasek admitted he did not know if
the fax machine of any class member actually used toner, ink or
paper to print a fax sent by Quick Link on Group C's behalf.
The report of Robert Biggerstaff, an expert retained by G.M.,
was admitted into evidence at trial, and both parties read to the
jury excerpts from Biggerstaff's deposition. The federal district
6
Matiasek testified that his company had participated in
approximately 100 TCPA lawsuits.
9 A-0754-15T1
court's opinion and order in the underlying action referenced
Biggerstaff's opinion regarding the number of faxes "successfully
transmitted" by Quick Link, and used that number as the basis for
its award on summary judgment.
In his deposition, Biggerstaff opined there were five stages
of a fax transmission, and a "successful" transmission required
completion of all five phases. However, the actual printout of a
fax did not occur during these five phases, and, a fax machine
could continue to receive additional pages of a fax even though
it might begin to print. A fax was "successful" regardless of
whether "the recipient actually got a piece of paper out of their
fax machine." Based upon his review of the records from Quick
Link, Biggerstaff did not know whether any of the class recipients
ever received a paper fax transmission.
Penn National argues that, contrary to the trial judge's
rulings when denying its motions for a directed verdict and JNOV,
Group C did not prove either "physical injury to tangible property"
or "loss of use of tangible property" as required by the policies.
It asserts that in its successful TCPA action, G.M. was only
required to prove that an unsolicited transmission was "directed
[at]" a particular fax device, not that an unsolicited fax was
printed or that a fax machine was rendered useless. It argues
that Biggerstaff's deposition testimony and report simply
10 A-0754-15T1
described the phases of a successful transmission of a fax and did
not establish that any class member suffered "property damage,"
nor did Matiasek's testimony establish that any other class member
suffered "property damage."
Group C counters by arguing the evidence established, at a
minimum, the successful transmissions to the class recipients
resulted in the admittedly temporary "loss of use of tangible
property," i.e., phone lines and fax machines. It contends whether
the recipient's fax machine ever printed out Group C's message did
not matter for purposes of coverage. Citing the district court's
opinion supporting summary judgment in the underlying action,
Group C asserts "all members of the underlying class, who had
already been adjudged to have had faxes successfully transmitted
to them, had their telephone lines and fax machines tied up and
thereby lost their use of them."
"Motions for involuntary dismissal, Rule 4:37-2(b), and JNOV,
Rule 4:40-2(b), are 'governed by the same evidential standard:
[I]f, accepting as true all the evidence which supports the
position of the party defending against the motion and according
[it] the benefit of all inferences which can reasonably and
legitimately be deduced therefrom, reasonable minds could differ,
the motion must be denied.'" Innes v. Marzano-Lesnevich, 435 N.J.
Super. 198, 223 (App. Div. 2014) (quoting Verdicchio v. Ricca, 179
11 A-0754-15T1
N.J. 1, 30 (2004) (first alteration in original) (citations
omitted), aff'd. as mod., 224 N.J. 584 (2016). "We apply the same
standard on review." Ibid. (citing Estate of Roach v. TRW, Inc.,
164 N.J. 598, 612 (2000)).
Without question, in passing the TCPA, Congress intended to
restrict unsolicited faxes, which "impose a cost on the called
party" in paper used and "occup[y] the recipient's facsimile
machine so that it is unavailable for legitimate business messages
while processing and printing the junk fax." Landsman & Funk PC
v. Skinder-Strauss Assocs., 640 F.3d 72, 76 (3d Cir. 2011)
(citations omitted). "The TCPA prohibits sending unsolicited fax
advertisements; it does not prohibit the sending of unsolicited
fax advertisements only when there are specific harms that a
plaintiff can later identify." City Select Auto Sales, Inc. v.
David Randall Assoc., Inc., 296 F.R.D. 299, 310 (D.N.J. 2013).
"The TCPA 'does not specifically require proof of receipt'" of the
fax. Id. at 309 (quoting CE Design Ltd. v. Cy's Crabhouse N.,
Inc., 259 F.R.D. 135, 142 (N.D. Ill. 2009)).
Undoubtedly, G.M. proved at trial that Group C violated the
TCPA, and we reject without further comment Penn National's
contention that Matiasek's testimony was incredible and
insufficient to demonstrate G.M. suffered property damage as
defined by the policies. R. 2:11-3(e)(1)(E). However, we agree
12 A-0754-15T1
with Penn National that Group C was not entitled to indemnification
simply because the judgment in the underlying action proved
violations of the TCPA as to other class members. The mere fact
that by enacting the TCPA Congress intended to address the
annoyance of unwanted faxes, and the potential loss of time, toner,
ink and temporary inutility of the machine itself, was insufficient
to prove actual property damages as defined by the policies. Group
C's right to indemnification required such proof. See Bldg.
Materials Corp. of Am. v. Allstate Ins. Co., 424 N.J. Super. 448,
458 (App. Div. 2012) (holding indemnitee "cannot establish a prima
facie case of covered loss simply by demonstrating that the class
action claimants alleged potential [covered] damage; rather, it
must show that the underlying settlement actually included payment
for such claimed damages").
Neither Biggerstaff's report nor his deposition testimony
proved any other class member suffered a "[p]hysical injury to
tangible property" from the offending faxes it received. Matiasek
clearly testified he had no idea what happened to other members
of the class, only that he knew, based upon Biggerstaff's report
that the faxes were "successful." During his deposition,
Biggerstaff was asked:
[Q.] Just because a facsimile has indicated
it being successful from the sender does not
13 A-0754-15T1
necessarily mean a piece of paper came out of
the recipient's fax machine, correct?
[A.] That is correct.
There was no proof that the class members' fax machines printed
out the faxes, i.e., thereby depleting the use of ink, toner or
paper.
The policies also covered damages that resulted from the
"loss of use" of property that was not damaged. Contrary to Group
C's assertion, there was no proof that other class members lost
the use of their phone lines or fax machines because of Quick Link
sending them a fax on behalf of Group C. In fact, contrary to
Group C's assertion, neither Biggerstaff's report nor his
deposition testimony demonstrated the unwanted faxes deprived a
class member of the use of its phone line or its fax machine.
As a result, Penn National's motion for a directed verdict
or its motion for JNOV should have been granted as to all claims
for property damage under the policies, save the one asserted and
proved by G.M.
II.
As noted, because the policies' intentional conduct exclusion
would have denied Group C coverage if it expected or intended the
property damage suffered by G.M. and the other class members, the
jury was asked to decide whether Group C "subjectively expect[ed]
14 A-0754-15T1
or intend[ed] the property damage." See Voorhees v. Preferred
Mut. Ins. Co., 128 N.J. 165, 183-84 (1992) (explaining "the
accidental nature of an occurrence is determined by analyzing
whether the alleged wrongdoer intended or expected to cause an
injury," and "require[s] an inquiry into the actor's subjective
intent to cause injury").
In our prior decision reversing summary judgment, we held
"that a good faith belief that the businesses contained on the
CCTB list obtained by Group C were willing to receive faxes from
other business entities would preclude application of the
intentional conduct exclusion." Penn National, slip op. at 24.7
7
Our prior opinion failed to address significant authority from
other courts holding that the receipt of unsolicited faxes in
violation of the TCPA did not trigger property damage coverage
under of business liability policies. For example, although we
cited to Terra Nova Ins. Co. v. Fray-Witzer, 869 N.E. 2d 565, 571
(Mass. 2007), and its discussion of Voorhees, see Penn National,
slip op. at 23, we failed to note that the Supreme Judicial Court
of Massachusetts held there was no coverage for property damage
arising from unsolicited faxes because any damage was not caused
by an accident and hence was not an occurrence under the policy.
Terra Nova, 869 N.E. 2d at 570-71.
Similarly, in St. Paul Fire & Marine Ins. Co. v. Brother
Int'l Corp., 319 Fed. Appx. 121, 127 (3d Cir. 2009), the court
affirmed the grant of summary judgment to the insurer under the
policy's property damage insuring provisions. Once again
interpreting Voorhees, the court reasoned the insured expected or
intended the property damage for which it sought coverage, i.e.,
the depletion of fax paper and toner, and therefore the insurer
properly denied coverage under an exclusion identical to the one
(footnote continued next page)
15 A-0754-15T1
The judge denied Penn National's request to define "good faith"
for the jury by analogizing to the Uniform Commercial Code (UCC),
N.J.S.A. 2A:1-201(b)(20), i.e. "honesty in fact."
The judge reasoned the suggested charge was inappropriate
because this was not a case involving the UCC. She provided the
following instructions:
The policy's exclusion for expected or
intended injury states . . . [t]his insurance
does not apply to "property damage" expected
or intended from the standpoint of the
insured.
Penn National bears the burden of proof
to establish that there was no "occurrence"
and also that the exclusion applies.
The accidental nature of an occurrence
is determined by analyzing whether the alleged
wrongdoer subjectively intended or expected to
cause an injury. If not, then the resulting
injury is accidental even if the act that
caused the injury was intentional.
You should apply that standard to
determine whether or not Group C's conduct
falls within the expected or intended injury
exclusion.
If you find that Group C ha[d] a good
faith belief that the businesses contained in
the [CCTB] list . . . were willing to receive
faxes from other business entities, then you
(footnote continued)
in this case. Ibid.; see also Melrose Hotel Co. v. St. Paul Fire
& Marine Ins. Co., 432 F. Supp. 2d 488, 510 (E.D. Pa. 2006)
(holding that insured's "knowledge about the TCPA and its lack of
intent to violate the TCPA are irrelevant to whether it intended
to cause the harm that befell Class members").
16 A-0754-15T1
must find that Group C did not subjectively
expect or intend the "property damage."
If you find that Group C did not have a
good faith belief that the businesses
contained in the [CCTB] list . . . were willing
to receive faxes from other business entities,
then you must find that Group C did
subjectively expect or intend the "property
damage."
Penn National argues before us it was reversible error not
to provide instructions on "good faith." It further contends that
instructions defining "good faith" were particularly necessary
because Ted's testimony at trial contradicted his prior
certification, referenced in our opinion, id. at 22. Ted
certified:
When I acquired the list from the CCTB, I
advised that Group C would probably use the
list for the dissemination of facsimiles. The
CCTB never recommended that I obtain
permission from each addressee before doing
so and never said I was not allowed to send
faxes promoting the TFM Show to the names on
the list. This supported my belief that I had
permission to fax the document to each company
listed by the CCTB, since I reasonably
concluded that a governmental entity could not
sell a list of facsimile numbers without first
receiving permission from those companies.
[Ibid.]
At trial, Ted acknowledged that he did not personally obtain the
lists, but rather two of his employees did. He never received any
affirmative assurances from the CCTB that the recipients had
17 A-0754-15T1
consented to receive faxes, but rather assumed a government entity
like the CCTB would not provide lists that contained the names of
businesses unless they had consented.8
We find no reason to reverse. Initially, Penn National's
claim that Ted committed a "fraud" on the court because his prior
certification was demonstrably false and misled us to reverse the
grant of summary judgment in our prior opinion lacks any merit.
R. 2:11-3(e)(1)(E). Nor does Ted's trial testimony in and of
itself warrant a jury charge defining "good faith." It suffices
to say the jury had ample opportunity to consider Ted's
credibility.
We agree that an explanation of "good faith" would have helped
the jury understand a complicated point, i.e., while Penn National
bore the burden to prove the exclusion applied, under our prior
holding, it could not shoulder that burden if Group C demonstrated
it acted in good faith. There were many sources, other than the
UCC, that could have been used to help the jury understand the
concept. See, e.g., Model Jury Charge (Civil), 4.10J, "Implied
Terms — Covenant of Good Faith and Fair Dealing" (2011) (cases
cited in footnotes two and three).
8
During trial, Penn National argued the CCTB's own website
indicates that it is not a governmental agency.
18 A-0754-15T1
In any event, we are convinced the failure to further define
"good faith" did not create reversible error in this case precisely
because the jury had the opportunity to consider whether Ted
"honestly believed" the lists contained only the names of those
which consented to receive faxes.
III.
Because we conclude Group C proved only one occurrence at
trial, we need not otherwise address the argument Penn National
asserts in Point I of its brief, i.e., there was only one
occurrence as a matter of law because all the faxes were the result
of a "single misjudgment by Group C." We also find without merit
Penn National's contention in Point IV that the Law Division erred
in permitting Group C to amend its counterclaim and in permitting
G.M. to assert bad faith claims in its intervenor complaint. R.
2:11-3(e)(1)(E).
Lastly, in Point V, Penn National argues the trial judge
abused her discretion in awarding fees that included time spent
in pursuit of Group C's bad faith claims. We do not agree. The
judge severely discounted the fee request based precisely on Group
C's lack of success.
However, in light of our decision, we remand the matter to
the trial judge for entry of an amended judgment limited to G.M.'s
claim, and to conduct a hearing on the appropriate fee award in
19 A-0754-15T1
light of our decision. We leave to the trial court's discretion
the conduct of the hearing.
As to A-0808-15
Before trial, the judge dismissed Group C's bad faith claims
on summary judgment, except for the count in its counterclaim that
alleged Penn National acted in bad faith by failing to settle the
underlying action at a time when it controlled that litigation and
could have settled the claim within Group C's policy limits. Group
C does not appeal from that order.
However, on the eve of trial, when the parties met to discuss
Penn National's various in limine motions, the insurer renewed its
attempt to dismiss the bad faith failure to settle claim by arguing
Group C's lack of an expert was fatal. Group C objected to the
untimeliness of the motion and requested an adjournment if the
court was inclined to dismiss for lack of an expert. The judge
did not rule on the issue at that time.
After the jury was sworn but before any testimony, the judge
questioned counsel as to whether our then-recent decision in
Wacker-Ciocco v. Government Employees Insurance Co., 439 N.J.
Super. 603 (App. Div. 2015), necessitated dismissal of the bad
faith failure to settle claim. Relying on Pickett v. Lloyd's and
Peerless Insurance Agency, Inc., 131 N.J. 457 (1993), and Wacker-
Ciocco, the judge dismissed the bad faith failure to settle claim
20 A-0754-15T1
because it was "fairly debatable" whether coverage existed,
particularly since the trial court had granted summary judgment
to Penn National in 2010 declaring there was no coverage. Relying
on Fireman's Fund Insurance Co. v. Security Insurance Co. of
Hartford, 72 N.J. 63 (1976), the judge further determined that
Group C should have protected its interests and negotiated its own
settlement with G.M. once it believed Penn National had breached
its obligation to settle the case.
Alternatively, the judge found that any assessment of Penn
National's conduct in this complex case was beyond the ken of the
average juror and dismissed the bad faith failure to settle claim
because Group C had no expert. Noting the case management order
required Group C to furnish an expert report nearly one year
earlier, she denied any adjournment and dismissed the bad faith
failure to settle counterclaim.
Group C now argues it was error for the judge to sua sponte
reconsider her earlier denial of summary judgment on this count
of its counterclaim. We disagree. See Lombardi v. Masso, 207
N.J. 517, 534 (2011) (quoting Johnson v. Cyklop Strapping Corp.,
220 N.J. Super. 250, 257 (App. Div. 1987) ("It is well established
that 'the trial court has the inherent power to be exercised in
its sound discretion, to review, revise, reconsider and modify its
interlocutory orders at any time prior to the entry of final
21 A-0754-15T1
judgment.'"). Here, the judge had discretion to reconsider her
earlier ruling, and she gave Group C ample time to address the
issues before making her decision.
Citing our decision in Cho v. Trinitas Regional Medical
Center, 443 N.J. Super. 461 (App. Div. 2015), decided after the
trial in this case, Group C further contends that Penn National's
in limine motion regarding the need for an expert was actually a
thinly-veiled untimely motion for summary judgment. We agree.
In Cho, 443 N.J. Super. at 468-69, the trial judge granted
the defendant's in limine motion to dismiss the plaintiff's
complaint on the eve of trial. We reversed, noting "as a general
rule, a motion in limine will not have a dispositive impact on a
litigant's entire case." Id. at 470. Further, such motions should
be granted sparingly "particularly . . . when the 'motion in
limine' seeks the exclusion of an expert's testimony, an objective
that has the concomitant effect of rendering a plaintiff's claim
futile." Id. at 470-71. We concluded the judge's decision denied
the plaintiff due process. Id. at 474-75.
During oral argument before the trial judge, Penn National's
counsel asserted that only the judge's denial of the insurer's
summary judgment motion one month earlier made it now necessary
to challenge Group C's lack of an expert. We reject the argument
as meritless. R. 2:11-3(e)(1)(E). Simply put, there was no good
22 A-0754-15T1
reason why Penn National did not raise the lack of expert testimony
as a basis to dismiss the claim at the same time it made its other
arguments. Raising that specific argument on the eve of trial was
improper.
Contrary to Penn National's argument, the result was not
harmless, see Cho, 443 N.J. Super. at 474-75, because we also
agree with Penn National and the judge that Group C needed an
expert to prosecute its bad faith failure to settle claims in such
a complex factual setting as here.
In Rova Farms Resort, Inc. v. Investors Insurance Co. of
America, 65 N.J. 474 (1974), the Court recognized an insured's
cause of action against its insurer for bad faith failure to settle
a third-party claim in certain instances where the insurer rejects
a settlement demand within the policy limits and the verdict
following trial exceeds the policy limits. The Rova Farms Court
explained that, if, under a liability insurance policy, the insurer
reserves "full control of the settlement of claims against the
insured, prohibiting him from effecting any compromise except at
his own expense," the insurer has a fiduciary obligation to
exercise good faith in settling those claims. Id. at 492. Thus,
any decision not to settle
"must be a thoroughly honest, intelligent and
objective one. It must be a realistic one
when tested by the necessarily assumed
23 A-0754-15T1
expertise of the company." This expertise
must be applied, in a given case, to a
consideration of all the factors bearing upon
the advisability of a settlement for the
protection of the insured. While the view of
the carrier or its attorney as to liability
is one important factor, a good faith
evaluation requires more. It includes
consideration of the anticipated range of a
verdict, should it be adverse; the strengths
and weaknesses of all of the evidence to be
presented on either side so far as known; the
history of the particular geographic area in
cases of similar nature; and the relative
appearance, persuasiveness, and likely appeal
of the claimant, the insured, and the
witnesses at trial.
[Id. at 489-90 (emphasis in original) (quoting
Bowers v. Camden Fire Ins. Assoc., 51 N.J. 62,
71 (1968)).]
In Wood v. New Jersey Manufacturer's Insurance Company, 206
N.J. 562, 571 (2011), the Court acknowledged that an assessment
of the reasonableness of an insurer's settlement negotiations in
the underlying action will likely hinge upon the credibility of
fact witnesses, as well as expert testimony as to what went wrong
on the settlement front and why. Mere rejection of an offer to
settle within the policy limit and a verdict at trial in excess
thereof is not enough by itself to establish bad faith. Radio
Taxi Service, Inc. v. Lincoln Mutual Ins. Co., 31 N.J. 299, 305
(1960). "[T]he administration of the good faith test is not easy
for either party to the insurance contract. . . . Considerations
24 A-0754-15T1
of experience, expertise and judgment are particularly important
and significant." Ibid.In Pasha v. Rosemount Memorial Park, Inc., 344 N.J. Super.
350, 353-55 (App. Div. 2001), the insured assigned it rights under
the insurance policy to the third-party plaintiffs following the
insurer's disclaimer of coverage and the insured's direct
settlement with the plaintiffs. See Griggs v. Bertram, 88 N.J.
347 (1982). We noted the importance of expert opinion in
determining the reasonableness of the settlement — an element of
the plaintiffs' claim — and agreed with the trial court that the
plaintiffs failed to sustain their burden of proof, even though
they had produced some expert testimony. Pasha, 344 N.J. Super.
at 356-59.
Here, we need not explain in detail the complicated factual
circumstances regarding Penn National's receipt of Group C's
initial claim, its denial of coverage and decision to provide a
defense under a reservation of rights, and, of course, the Law
Division's original grant of summary judgment declaring that Penn
National had no duty to defend or indemnify. All of these must
be considered with reference to the timeline of the underlying
action, including the ultimate certification of the class in
federal court. In our mind, a jury was incapable of properly
25 A-0754-15T1
considering whether Penn National breached its fiduciary duty to
Group C without expert testimony.
Without the benefit of our decision in Cho, we understand the
judge's denial of Group C's adjournment request, given the long
and tortured history of the litigation. However, when Group C was
essentially lulled into believing it could proceed without an
expert by Penn National's unexcused failure to argue otherwise
before the day of trial, the judge should have more appropriately
adjourned the trial rather than dismiss the claim on this ground.
Alternatively, the judge could have severed the bad faith claims
and proceeded first with the coverage issue, a procedure she
discussed with the attorneys before trial but ultimately did not
need to employ. See Taddei v. State Farm Indem. Co., 401 N.J.
Super. 449, 465 (App. Div. 2008) (suggesting severance of the
first-party bad faith claim from underinsured motorist trial).
We therefore reverse the dismissal of Group C's bad faith
failure to settle claim and remand the matter to the trial court
for further proceedings.
As a result, we need not decide for now whether the judge
properly applied Pickett's "fairly debatable" standard as another
reason to dismiss the bad faith failure to settle claim. Group C
argues Pickett is simply inapplicable to an insured's bad faith
failure to settle a third-party claim. See Wood, 206 N.J. at 564
26 A-0754-15T1
(explaining nature of Rova Farms bad faith failure to settle
claim); Badiali v. N.J. Mfrs. Ins. Gp., 220 N.J. 544, 554 (2015)
(explaining "first-party bad faith claim for denial of benefits").
In Taddei, 401 N.J. Super. at 459, a case involving a first-
party claim for uninsured motorist benefits, we explained:
The remedy in Rova Farms was based on the
unique fiduciary relationship that arose out
of a general liability insurance policy. . . .
The policy prohibited the insured from
participating in the settlement of the third-
party claim against it. . . . The Court found
that this created a fiduciary duty on the part
of the insurer to act in good faith in
attempting to settle the claim. . . . This
duty was of particular importance because the
insured was personally liable for any damages
in excess of the policy limit. . . . The
Court reasoned that, in essence, an insurer
choosing not to settle within the limits of
coverage should not be permitted to gamble
with its insured's money. . . .
That rationale does not carry over to the
first party context. The insured's assets are
not placed at risk for failure to settle
within the policy limits.
The same fiduciary duty is not implicated when an insurer simply
refuses to defend under the policy.
In Universal-Rundle Corporation v. Commercial Union Insurance
Co., 319 N.J. Super. 223, 249-51 (App. Div. 1999), however, we
held that the Pickett "fairly debatable" standard applied to an
insured's bad faith third-party coverage claim, not a failure to
settle claim. No reported New Jersey decision has addressed
27 A-0754-15T1
whether Pickett's "reasonably debatable" standard applies to an
insured's bad faith refusal to settle claim.
However, in American Hardware Mutual Insurance Company v.
Harley Davidson of Trenton, Inc., 124 Fed. Appx. 107, 109 (3d Cir.
2005), the Third Circuit rejected the insurer's argument that
Pickett applied to such a claim, explaining:
Whether [the insured] would be held
liable for [the third-party's] injuries was
"fairly debatable," but in the context of a
third-party claim with a possibility of an
excess verdict, Pickett supplies only part of
the equation. The "fairly debatable" standard
is analogous to the probability liability will
attach in a third-party claim, but it does not
consider the likelihood of an excess verdict.
A third-party claim that may exceed the policy
limit creates a conflict of interest in that
the limit can embolden the insurer to contest
liability while the insured is indifferent to
any settlement within the limit. This
conflict is not implicated when the insured
is a first-party beneficiary, where the
claimant and the insurer are in an adversarial
posture and the possibility of an excess
verdict is absent. Rova Farms, not Pickett,
protects insureds who are relegated to the
sidelines in third-party litigation from the
danger that insurers will not internalize the
full expected value of a claim due to a policy
cap.
We conclude that the Rova Farms standard
governs this case.
[Id. at 112.]
Without deciding the issue, we acknowledge the appeal of the
Third Circuit's rationale. An insurer who, while exclusively
28 A-0754-15T1
controlling the litigation, acts in bad faith and refuses to settle
a third-party claim within its insured's policy limits exposes the
insured to personal liability. The situation therefore presents
different concerns from those posed by a suit where the insurer
acts in bad faith and wrongfully denies contractual benefits to
the insured under its policy of insurance.
We also note our disagreement with Penn National's argument,
accepted by the trial judge, that Group C's failure to negotiate
a settlement when the insurer declined coverage was necessarily
fatal to the bad faith claim. In Fireman's Fund, 72 N.J. at 67-
68, the insured, which had purchased a $50,000 primary liability
policy with the defendant insurer, and a $250,000 excess policy
with a second carrier, was presented with a $147,000 settlement
demand, far less than the potential damages of $400,000 to $542,000
to which it was exposed. After the defendant insurer refused to
settle or contribute its $50,000, the insured, with the financial
cooperation of its excess carrier, settled the case for $135,000.
Id. at 68. The insured then sued the defendant insurer, alleging
bad faith refusal to settle and seeking $50,000 plus interest and
punitive damages. Ibid.After the insured prevailed on its compensatory damages claim
in both the trial and appellate courts, the matter came before the
Supreme Court. Id. at 67-68. The Court ruled that, when an
29 A-0754-15T1
insurer breaches its good faith obligation to settle, the insured
may make a reasonable settlement and then seek reimbursement from
the insurer, even though the policy purports to avoid liability
for settlements made without the insurer's consent. Id. at 71-
75. According to the Court:
The consequences of a breach of that
obligation differ depending on whether, viewed
as of the time the settlement offer is being
considered, the potential award is within or
beyond the limits of the policy. If the
potential loss is within the policy limits,
then there is no reason to deprive the insurer
– the only one appearing to have a pecuniary
interest in the ultimate liability and the
only source of the funds to be paid in
settlement – of its absolute right to control
the litigation. . . . In such a situation,
even though the insured may deem the refusal
of the insurer to settle to be in bad faith,
since prima facie the insured's pecuniary
interest does not appear to be involved, it
is appropriate to hold that the insured has
no alternative but to await the trial of the
negligence action and, if it results in a
judgment in the claimant's favor in excess of
the policy limits, then to institute an action
against the insurer to recover the amount of
the policy limits and in addition the amount
by which the judgment exceeded the amount for
which the claimant was willing to
settle. . . .
A different situation is presented when,
viewed as of the time the settlement offer is
received, the potential loss and the proposed
settlement exceed, as they did here by far,
the limits of the policy. In such a situation,
the insured may, but he need not await the
outcome of the trial of the negligence action.
He should not "be required to wait until after
30 A-0754-15T1
the storm before seeking refuge" when faced
with "a potential judgment far in excess of
the limits of the policy." . . . .
He should be and is permitted, as in
other cases in which the insurer has breached
its obligations, to proceed to make a prudent
good faith settlement for an amount in excess
of the policy limits and then, upon proof of
the breach of the insurer's obligation and the
reasonableness and good faith of the
settlement made, to recover the amount of the
policy limits from the insurer.
[Id. at 74-75 (emphasis added).]
The Fireman's Fund Court did not require, as a matter of law, that
insureds enter into settlements at their own expense in order to
protect their interests if an insurer refuses to settle a case.
It merely held that under certain circumstances, insureds could
do so without violating policy terms where there has been a breach
by the insurer. The insured in Fireman's Fund had an excess
carrier willing to assist it in achieving settlement; Group C had
no other carrier to turn to.
In A-0754-15, we reverse in part, affirm in part and remand
the matter to the trial court for further proceedings consistent
with our opinion.
In A-0808-15, we reverse the dismissal of Group C's Rova
Farms bad faith in failing to settle counterclaim and remand for
further proceedings consistent with this opinion.
31 A-0754-15T1