Kwabena Wadeer v. New Jersey Manufacturers Insurance Company (072010)

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized).
Kwabena Wadeer v. N.J. Mfrs. Ins. Co. (A-54-12) (072010)
Argued September 9, 2014 -- Decided February 18, 2014
FERNANDEZ-VINA, J., writing for a unanimous Court.
In this appeal, the Court considers whether a plaintiff’s claim alleging his insurer acted in bad faith by
failing to settle his uninsured motorist (UM) claim is barred by the entire controversy doctrine or the doctrine of res
judicata.
Plaintiff, Kwabena Wadeer, suffered injuries in a motor vehicle accident that occurred while he was
attempting to avoid an unidentified vehicle. Plaintiff pursued a UM claim against New Jersey Manufacturers
Insurance Company (NJM), with whom he had an insurance policy that provided $100,000 in UM and UIM
coverage. NJM made no offers to attempt to settle plaintiff’s UM claim and the parties proceeded to private
arbitration pursuant to the terms of the insurance policy. The panel determined that plaintiff was 30% liable for the
accident, the phantom vehicle was 70% liable, and plaintiff was entitled to a net award of $87,500. NJM rejected
the $87,500 arbitration award and demanded a trial. By letter dated April 21, 2005, plaintiff’s attorney
acknowledged NJM’s rejection of the arbitration award and notified NJM that he believed it was acting in bad faith
by rejecting that award.
On April 28, 2005, plaintiff filed a complaint against NJM seeking UM benefits. Plaintiff’s complaint
made no explicit allegations of bad faith or breach of duties. After mandatory, non-binding arbitration resulted in a
50/50 liability finding and a net award of $162,500 to plaintiff, NJM again refused the award and opted for a jury
trial. On April 7, 2006, pursuant to Rule 4:58-2, plaintiff submitted an Offer of Judgment to NJM in the amount of
$95,000 and reiterated his belief that defendant’s conduct was in bad faith. NJM rejected the offer and the case
proceeded to trial. The jury determined that the phantom vehicle was 100% liable for the underlying accident and
awarded plaintiff $210,000 for pain and suffering and $12,175 in lost wages. Plaintiff thereafter moved to enter
judgment for the full amount of the verdict, notwithstanding the $100,000 policy limit, as well as for prejudgment
interest on the verdict and attorneys’ fees. During argument on the motion, plaintiff’s counsel raised the issue of bad
faith, contending that defendant was on notice of the claim. In response, NJM argued that plaintiff failed to plead
bad faith in his complaint. The trial judge entered an order on September 17, 2007, reducing and molding the jury
verdict to conform to the insurance policy limit of $100,000 and awarding plaintiff attorneys’ fees and prejudgment
interest. In his accompanying statement of reasons, the trial judge found that NJM’s actions did not constitute bad
faith because NJM had fairly debatable reasons for denying the benefits of the policy. Plaintiff and NJM filed cross-
appeals. Plaintiff contended the trial court should not have molded the verdict to the policy limits because NJM
acted in bad faith. The Appellate Division affirmed the trial judge’s modified jury verdict, but reversed the award of
attorneys’ fees and expenses.
Subsequently, on July 8, 2009, plaintiff filed a separate complaint alleging that NJM breached its duty of
good faith and fair dealing. Plaintiff asserted that NJM acted in bad faith by failing to make a settlement offer to
plaintiff and by failing to settle the claim in a timely manner. NJM moved for summary judgment, arguing that
plaintiff’s complaint was barred by the entire controversy doctrine, res judicata, and/or collateral estoppel. On
January 21, 2011, the trial judge granted NJM’s motion for summary judgment, finding that the entire controversy
doctrine barred plaintiff’s bad faith claim. The trial judge also determined that the doctrine of res judicata applied.
The Appellate Division affirmed on the basis of the entire controversy doctrine. This Court granted plaintiff’s
petition for certification. 213 N.J. 534 (2013).
HELD: Plaintiff’s bad faith claim is barred in this action under the principle of res judicata because it was raised,
fairly litigated, and determined by the trial court in the first litigation.
1
1. “[A]n insurance company owes a duty of good faith to its insured in processing a first-party claim.” Pickett v.
Lloydʼs, 131 N.J. 457, 467 (1993). In order to make a showing of bad faith in a first-party claim based on a denial
of benefits, “[a] plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the
defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Id. at 473(quoting Bibeault v. Hanover Ins. Co., 417 A.2d 313, 319 (R.I. 1980)). “Under the ‘fairly debatable’ standard, a
claimant who could not have established as a matter of law a right to summary judgment on the substantive claim
would not be entitled to assert a claim for an insurer’s bad faith refusal to pay the claim.” Ibid. (pp. 14-15)
2. The entire controversy doctrine, codified in Rule 4:30A, “embodies the principle that the adjudication of a legal
controversy should occur in one litigation in only one court; accordingly, all parties involved in a litigation should at
the very least present in that proceeding all of their claims and defenses that are related to the underlying
controversy.” Highland Lakes Country Club & Cmty. Ass’n v. Nicastro, 201 N.J. 123, 125 (2009). In determining
whether a subsequent claim should be barred under this doctrine, “the central consideration is whether the claims
against the different parties arise from related facts or the same transaction or series of transactions.” DiTrolio v.
Antiles, 142 N.J. 253, 267 (1995). Because a plaintiff should have “a fair and reasonable opportunity to have fully
litigated that claim in the original action,” the doctrine “does not apply to unknown or unaccrued claims.” Id. at
274. Put simply, “[f]airness in the application of the entire controversy doctrine focuses on the litigation posture of
the respective parties and whether all of their claims and defenses could be most soundly and appropriately litigated
and disposed of in a single comprehensive adjudication.” Id. at 277. (pp. 15-17)
3. Res judicata “contemplates that when a controversy between parties is once fairly litigated and determined it is no
longer open to relitigation.” Lubliner v. Bd. of Alcoholic Beverage Control, 33 N.J. 428, 435 (1960). Application
of res judicata “requires substantially similar or identical causes of action and issues, parties, and relief sought,” as
well as a final judgment. Culver v. Ins. Co. of North America, 115 N.J. 451, 463 (1989). To decide if two causes of
action are the same, the court must determine: “(1) whether the acts complained of and the demand for relief are the
same (that is, whether the wrong for which redress is sought is the same in both actions); (2) whether the theory of
recovery is the same; (3) whether the witnesses and documents necessary at trial are the same (that is, whether the
same evidence necessary to maintain the second action would have been sufficient to support the first); and (4)
whether the material facts alleged are the same.” Id. at 461-62. In Culver, the Court applied the doctrine of res
judicata to bar a second action filed by insureds against their insurer alleging misrepresentations and breach of
fiduciary duties because, in a prior subrogation action with the insurer, the insureds filed a cross motion, which the
trial court ruled upon, raising the same claims of misconduct, the same material facts that would be established with
the same evidence, and seeking similar relief. Id. at 454, 462. Here, like in Culver, plaintiff raised his bad faith
claim in the first action, and the trial court addressed and disposed of that claim in its September 17, 2007 order and
statement of reasons. Plaintiff’s second action involves the same alleged wrongs, the same theories of recovery
(NJM’s alleged breach of its duty of good faith and fair dealing, warranting both consequential and punitive
damages), the same evidence (the “fact” that NJM refused to settle, “forcing” plaintiff to take his case to trial
because its liability would not exceed the UM policy limit regardless of the verdict), and the same material facts as
in the first litigation. Thus, res judicata bars plaintiff’s bad faith claim from relitigation. (pp. 17-22)
4. Despite the Court’s disposition of plaintiff’s bad faith claim, it separately addresses the entire controversy
doctrine. Because acts of first-party bad faith in the UM context can, and often will, continue throughout the course
of the underlying proceedings, the nature of first-party bad faith claims warrants exemption from a harsh application
of the entire controversy doctrine. Rather than forcing a plaintiff to amend the initial complaint to add and reflect
each incident of bad faith, viewing bad faith claims as separate and distinct actions promotes judicial efficiency and
economy. The Court refers this matter to the Civil Practice Committee to consider whether our court rules should be
modified to permit an insured to bring a first-party bad faith claim against an insurer after resolution of an
underlying, interrelated UM action. The Court also refers the Offer of Judgment Rule, Rule 4:58-2, to the Civil
Practice Committee to recommend an amendment addressing issues that arise in applying that rule to a monetary
judgment molded to the policy limits in a UM/UIM action. Finally, the Court refers Rule 4:42-9(a)(6) to the Civil
Practice Committee to consider whether that rule should be extended to authorize a fee award to an insured who
brings direct suit against his insurer to enforce any direct coverage, including UM/UIM coverage. (pp. 23-26)
The judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE RABNER, JUSTICES ALBIN and SOLOMON, and JUDGE CUFF (temporarily
2
assigned) join in JUSTICE FERNANDEZ-VINA’s opinion. JUSTICES LaVECCHIA and PATTERSON did
not participate.
3
SUPREME COURT OF NEW JERSEY
A-54 September Term 2012
072010
KWABENA WADEER and OFELIA
WADEER,
Plaintiffs-Appellants,
v.
NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,
Defendant-Respondent.
Argued September 9, 2014 – Decided February 18, 2015
On certification to the Superior Court,
Appellate Division.
E. Drew Britcher and Donald A. Caminiti
argued the cause for appellants (Britcher,
Leone & Roth, attorneys for Kwabena Wadeer
and Breslin and Breslin, attorneys for
Ofelia Wadeer; Mr. Britcher, Mr. Caminiti,
and Kristen B. Miller, on the brief).
Daniel J. Pomeroy argued the cause for
respondent (Pomeroy, Heller & Ley,
attorneys; Mr. Pomeroy and Karen E. Heller,
on the briefs).
Amos Gern argued the cause for amicus curiae
New Jersey Association for Justice (Starr,
Gern, Davison & Rubin, attorneys; John J.
Ratkowitz, on the brief).
Hugh P. Francis argued the cause for amici
curiae Insurance Council of New Jersey,
Property Casualty Insurers Association of
America, and National Association of Mutual
Insurance Companies (Francis & Berry,
attorneys; Mr. Francis and Joanna Huc, on
the brief).
1
David F. Swerdlow submitted a brief on
behalf of amicus curiae New Jersey Lawsuit
Reform Alliance (Windels Marx Lane &
Mittendorf, attorneys).
JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.
The issue on appeal is whether a plaintiff’s claim alleging
his insurer acted in bad faith by failing to settle his
uninsured motorist (UM) claim is barred by the entire
controversy doctrine or the doctrine of res judicata.
Plaintiff1, Kwabena Wadeer, suffered injuries as a result of
a motor vehicle accident. At the time of the accident,
plaintiff was insured under a policy issued by defendant, New
Jersey Manufacturers Insurance Company (NJM). Plaintiff
notified NJM of his UM claim and demanded that NJM pay its
policy limits to settle his claim. NJM did not offer the full
limits of its policy and made no offers to settle the UM claim.
Rather, NJM rejected two arbitration awards, one within its
policy limits and one in excess of its policy limits. NJM also
rejected an offer of judgment submitted by plaintiff in the
amount of $95,000, thereby forcing the action to proceed to
trial.
After a jury verdict was rendered in plaintiff’s favor in
the amount of $255,175, the trial court molded the verdict to
1 Ofelia Wadeer also filed a consortium claim in this case but
plaintiff refers to Kwabena Wadeer.
2
NJM’s $100,000 policy limits, added attorneysʼ fees, costs, and
pre-judgment interest, and reduced the total amount to a
judgment in favor of plaintiff. Plaintiff and NJM filed cross-
appeals.
Plaintiff contended the trial court should not have molded
the verdict to NJM’s policy limits because NJM had acted in bad
faith. Plaintiff further argued that “as a result of NJM’s
failure to act in good faith towards resolving [the] claim
within their policy limits,” NJM must be held accountable for
both consequential damages as well as punitive damages to deter
NJM from engaging in such conduct in the future.
The Appellate Division issued an unpublished opinion
affirming the portion of the order that molded the verdict to
the policy limits and reversing the portion of the order that
awarded fees and expenses pursuant to the Offer of Judgment
Rule, Rule 4:58-2. The panel specifically rejected plaintiff’s
arguments disputing the trial court’s molding of the verdict to
the insurance policy limits following Taddei v. State Farm
Indem. Co., 401 N.J. Super. 449 (App. Div. 2008), and affirmed
the trial court’s ruling finding an absence of bad faith on the
part of NJM. The Appellate Division held that application of
Rule 4:58-2 is triggered by measuring the amount of the offer of
judgment filed by plaintiff against the amount of the eventual
judgment for compensatory damages entered by the court, not the
3
amount of the full damages verdict, and therefore plaintiff had
not obtained a judgment in an amount sufficient to trigger the
rule.
Thereafter, plaintiff filed a separate complaint against
NJM alleging that NJM breached its duty of good faith and fair
dealing by failing to make a settlement offer to plaintiff and
to settle the claim in a timely manner. NJM moved for summary
judgment, arguing that the claim was barred by the entire
controversy doctrine, res judicata, and collateral estoppel.
The trial court granted NJM’s motion, determining that res
judicata and the entire controversy doctrine barred plaintiff’s
bad faith claim.
Plaintiff appealed, arguing that his bad faith action did
not ripen until the jury returned its verdict and that barring
his bad faith action under the entire controversy doctrine was
fundamentally unfair. The Appellate Division affirmed in an
unpublished opinion, finding NJM’s pretrial actions were
sufficient to establish the basis for a bad faith claim, that
plaintiff had a fair opportunity to assert and litigate his bad
faith action, and that there was nothing unfair about requiring
plaintiff to pursue the bad faith claim in the first trial,
since he had threatened a bad faith claim before filing the UM
action.
4
For the reasons set forth in this opinion, we affirm the
judgment of the Appellate Division. Although we concur with the
panelʼs ultimate conclusion that plaintiff’s bad faith claim was
barred, we find the principle of res judicata to be controlling,
not the entire controversy doctrine, because plaintiff raised
his bad faith claims during the first trial. However, we hereby
refer to the Civil Practice Committee, for review and study the
entire controversy doctrine, Rule 4:30A, to consider whether to
allow first-party bad faith claims to be asserted and decided
after resolution of an underlying, interrelated UM action. We
refer the Offer of Judgment Rule, Rule 4:58-2, to determine
whether in the UM (uninsured motorist)/UIM (underinsured
motorist) context, application of the rule should be triggered
by measuring the amount of the offer of judgment filed by the
plaintiff against the full damages verdict, rather than against
the molded judgment entered by the court. We also refer Rule
4:42-9(a)(6) which allows for counsel fees to be awarded “in an
action upon a liability or indemnity policy of insurance, in
favor of a successful claimant,” but not with respect to
first-party insurance claims such as UM/UIM, to determine
whether Rule 4:42-9(a)(6) should be extended to authorize a fee
award to an insured who brings direct suit against his insurer
to enforce any direct coverage, including UM/UIM coverage.
I.
5
On August 15, 2003, plaintiff, Kwabena Wadeer, was injured
in an automobile accident. According to the police report,
plaintiff was cut off by an unidentified white minivan, causing
plaintiff to cross a grass median and lose control of his car.
Plaintiff’s vehicle collided with an automobile and was
subsequently hit by a tractor trailer. Plaintiff suffered
several fractures to his leg as a result of the accident, and
sustained approximately $12,000 in lost wages.
At the time of the accident, plaintiff and his wife, Ofelia
Wadeer, were insured under a policy issued by defendant NJM.
The policy insured plaintiffs with UM and UIM in the amount of
$100,000. Because neither plaintiff, nor any other witness to
the accident, could identify the vehicle that caused plaintiff
to veer into the other side of the highway, he pursued a UM
claim.
On October 8, 2003, plaintiff notified NJM of his UM claim,
and, shortly thereafter, sent medical records to support that
claim. NJM did not offer the full limits of the policy and made
no offers to attempt to settle plaintiff’s UM claim. The
parties proceeded to private arbitration pursuant to the terms
of the arbitration provision contained in the insurance policy.
On February 25, 2005, the parties appeared for arbitration
before a panel of three UM arbitrators. The panel determined
that plaintiff was 30% liable for the accident, and the phantom
6
vehicle was 70% liable. As a result, the arbitrators found that
plaintiff was entitled to a gross award of $125,000. After
reducing the award to account for plaintiff’s comparative
negligence, the arbitrators determined plaintiff was entitled to
a net award of $87,500.
NJM rejected the $87,500 arbitration award, which was
within the limits of its insurance policy, and demanded a trial.
Plaintiff’s attorney acknowledged NJM’s rejection of the
arbitration award by letter dated April 21, 2005, and notified
NJM that he believed NJM was acting in bad faith by rejecting
that award:
This letter shall also confirm that during our
telephone conversation on April 19, 2005 you
advised that the arbitration award [was] so
close to my client’s policy limits that New
Jersey Manufacturers felt they would just [as
soon] try this case without fear that they
would ever have to pay more than the policy
limits of $100,000.00. It was apparent to me
from our conversation that NJM feels they have
nothing to lose by trying this case. I feel
this is bad faith by NJM and I am troubled by
their approach, especially in a case where the
defense arbitrator even agreed my clientʼs
damages are worth well in excess of the policy
limits.
Thereafter, on April 28, 2005, plaintiff filed a four-count
complaint against NJM seeking UM benefits. Plaintiff’s
complaint made no explicit allegations against NJM regarding any
purported bad faith or alleged breach of any duties by NJM to
its insured. Defendant filed an answer on June 21, 2005. The
7
matter was thereafter submitted to mandatory, non-binding
arbitration pursuant to Rule 4:21A, which resulted in a 50/50
liability finding, and a net award of $162,500 to plaintiff on a
gross award of $325,000. NJM again refused the award and opted
for a jury trial.
On April 7, 2006, pursuant to Rule 4:58-2, plaintiff
submitted an Offer of Judgment to NJM in the amount of $95,000,
reiterated his belief that defendant’s conduct was in bad faith
and warned that, if the case proceeded to trial, plaintiff would
pursue the full amount of a jury verdict even if it was in
excess of the UM policy limits. NJM rejected this offer and the
case proceeded to trial.
A jury trial was conducted from July 16, 2007 through July
18, 2007. At the conclusion of trial, the jury determined that
the phantom vehicle was 100% liable for the underlying accident.
The jury awarded plaintiff $210,000 for pain and suffering and
$12,175 in lost wages. The jury also awarded plaintiff’s wife
$33,000 in damages for her consortium claim. Plaintiff
thereafter moved to enter judgment for the full amount of the
verdict, notwithstanding the $100,000 policy limit, as well as
for prejudgment interest on the verdict in the amount of
$27,278.23, and attorneys’ fees of $93,586.51.
Oral argument for that motion was held on September 7,
2007. During argument, plaintiff’s counsel raised the issue of
8
bad faith, contending that defendant was on notice of the claim.
In response, counsel for NJM argued, among other things, that
plaintiff failed to plead bad faith in his complaint.
By order entered September 17, 2007, the trial judge
reduced and modified the jury verdict to conform to the
insurance policy limit of $100,000. The judge also awarded
plaintiff attorneys’ fees and prejudgment interest. In his
accompanying statement of reasons, the trial judge noted that
NJM’s actions did not constitute bad faith because NJM had
fairly debatable reasons for denying the benefits of the policy.
On March 31, 2008, the trial judge issued a Final Order
Entering Judgment that reaffirmed his September 17, 2007 order.
The March 31, 2008 order (1) molded the jury verdict to conform
with the $100,000 policy limit; (2) awarded $93,586.51 to
plaintiff for attorneys’ and court fees pursuant to the Offer of
Judgment Rule, Rule 4:58-2, (3) awarded $15,652 in prejudgment
interest; and (4) denied plaintiff’s motion for reconsideration.
Plaintiff and NJM filed cross-appeals. Plaintiff contended
the trial court should not have molded the verdict to NJMʼs
policy limits because NJM had acted in bad faith. The Appellate
Division concurred with the trial judge’s modified jury verdict,
but reversed the award of attorneys’ fees and expenses (Wadeer
I).
9
Subsequently, on July 8, 2009, plaintiff filed a complaint
in the Superior Court, Law Division, alleging that NJM breached
its duty of good faith and fair dealing, as well as the New
Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -195, and the
Unfair Claims Settlement Practices Act, N.J.S.A. 17:29B-1 to
-19. As a factual basis for those contentions, plaintiff
asserted that NJM acted in bad faith by failing to make a
settlement offer to plaintiff and by failing to settle the claim
in a timely manner. NJM moved for summary judgment, arguing
that plaintiff’s complaint was barred by the entire controversy
doctrine, res judicata, and/or collateral estoppel.
On January 21, 2011, the trial judge granted NJM’s motion
for summary judgment, finding that the entire controversy
doctrine barred plaintiff’s bad faith claim. The trial judge
further determined that the doctrine of res judicata applied
under the principles of Culver v. Ins. Co. of North America, 115
N.J. 451, 463 (1989). Plaintiff appealed.
The Appellate Division, relying on Taddei, supra, 401 N.J.
Super. at 465, affirmed on the basis of the entire controversy
doctrine, which it stated generally requires that a claim of bad
faith be raised in the initial UM action (Wadeer II). The
appellate panel rejected plaintiff’s claim that his bad faith
cause of action did not ripen until the jury returned its
verdict. Rather, the panel found that plaintiff’s bad faith
10
action accrued prior to the verdict and that plaintiff had a
fair opportunity to assert and litigate that action.
Accordingly, the panel held that there was nothing unfair or
inequitable about requiring a plaintiff to pursue a bad faith
claim in an UM action where 1) plaintiff recognized and
threatened a bad faith claim before filing the UM action, 2) the
carrier made no settlement offer despite an arbitration panelʼs
evaluation of damages in excess of the policy, and 3) the
carrier represented that it intended to proceed to trial solely
because it would not have to pay more. Plaintiffʼs remaining
arguments were determined to be meritless under Rule 2:11-
3(e)(1)(E).
This Court granted plaintiff’s petition for certification.
Wadeer v. N.J. Mfrs. Ins. Co., 213 N.J. 534 (2013). Thereafter,
we granted leave to appear as amici curiae to New Jersey
Association for Justice (“NJAJ”) and to Insurance Council of New
Jersey, Property Casualty Insurers Association of America, and
National Association of Mutual Insurance Companies, together.
II.
Plaintiff argues that the Appellate Division erred both in
finding that his bad faith cause of action accrued before he
filed the UM lawsuit and in applying the entire controversy
doctrine to bar his claim as a result.
11
Plaintiff asserts that the legal injuries complained of in
his bad faith action did not arise until after the jury verdict
when the trial judge reduced the excess award to comport with
the $100,000 policy limit. Plaintiff argues that it is
illogical to require plaintiff to bring a bad faith claim before
the conclusion of the underlying case because acts of bad faith
will often continue until the verdict is rendered.
Further, plaintiff specifically notes that there is no
commonality of legal issues between plaintiff’s UM bodily injury
claim and his bad faith action. Plaintiff maintains that the
factual circumstances of a personal injury claim arising from a
motor vehicle accident do not give rise to a bad faith action.
Rather, plaintiff argues that the bad faith cause of action is a
separate and distinct claim solely relating to the conduct and
actions of NJM throughout the course of the legal proceedings in
the UM lawsuit. Emphasizing that the entire controversy
doctrine is an equitable concept predicated upon judicial
fairness, plaintiff contends that the result below renders null
any concept of fundamental fairness and equity by requiring that
a bad faith claim be brought prior to the conclusion of the
underlying action.
Finally, plaintiff asserts that his bad faith claim against
NJM was dismissed without adequate discovery and that it is
“highly questionable” to permit a trial court to determine the
12
viability of such a claim on post-trial motion. As such,
plaintiff argues that it is entitled to conduct appropriate
discovery to support its bad faith claim, and requests that this
Court clarify the procedural and substantive law addressing the
prosecution of first-party bad faith claims.
NJM, on the other hand, argues that the trial court and
Appellate Division correctly applied the entire controversy
doctrine to bar plaintiff’s bad faith claim. NJM maintains
that, although plaintiff expressed his opinion that NJM’s
failure to settle the UM claim was in bad faith, he failed to
allege bad faith in his first complaint. As such, NJM argues
that the circumstances establishing the basis for plaintiff’s
bad faith claim existed for more than two years during the
pendency of the first action, and thus plaintiff’s failure to
plead the claim during that time barred its inclusion in the
instant litigation. NJM additionally asserts that such a
conclusion is also amply supported by the doctrines of res
judicata and collateral estoppel, given that plaintiff was
permitted to seek an adjudication of the bad faith claim before
the trial judge, despite shortcomings in his pleadings.
NJM additionally disputes plaintiff’s contention regarding
the lack of commonality between plaintiff’s UM bodily injury
claim and plaintiff’s bad faith action. NJM cites to DiTrolio
v. Antiles, 142 N.J. 253, 267 (1995), to support its contention
13
that the core set of underlying facts here provides the
necessary link between the claims and triggers the requirement
that they be determined in one proceeding.
Finally, NJM disputes plaintiff’s contention that there is
a pressing need for this Court to provide other first-party
litigants with procedural guidance regarding the timing of bad
faith claims. NJM contends that such litigants would be well-
served to follow established principles of claim preclusion and
assert their claims prior to the resolution of their UM
litigation, with discovery regarding such claims being held in
abeyance until the claim for first-party benefits concludes.
NJAJ, appearing as amicus curiae, supports the arguments
advanced by plaintiff. NJAJ argues that insurance companies
“have approached uninsured motorists and underinsured motorists
bodily injury claims in a fashion that bespeaks arbitrary and
capricious behavior.” On the merits, NJAJ contends that the
entire controversy doctrine does not bar plaintiff’s claim in
the instant case. In addition, and more generally, NJAJ seeks
clarification of the standards applicable in resolving first-
party bad faith claims against insurers.
Insurance Council of New Jersey, Property Casualty Insurers
Association of America, and National Association of Mutual
Insurance Companies, appearing together as amici curiae, support
the arguments advanced by NJM. Amici contend that the “fairly
14
debatable” standard should not be revisited and further endorse
the Appellate Division’s application of the entire controversy
doctrine to bar plaintiff’s bad faith claim.
III.
“[I]t is well-settled that, in New Jersey, ‘every insurance
contract contains an implied covenant of good faith and fair
dealing.’” Wood v. N.J. Mfrs. Ins. Co., 206 N.J. 562, 577
(2011) (quoting Price v. N.J. Mfrs. Ins. Co., 182 N.J. 519, 526
(2005)). As an extension, “an insurance company owes a duty of
good faith to its insured in processing a first-party claim.”
Pickett v. Lloydʼs, 131 N.J. 457, 467 (1993). In order to make
a showing of bad faith in a first-party claim based on a denial
of benefits2,
“[a] plaintiff must show the absence of a
reasonable basis for denying benefits of the
policy and the defendantʼs knowledge or
reckless disregard of the lack of a reasonable
basis for denying the claim. It is apparent,
then, that the tort of bad faith is an
intentional one . . . implicit in that test is
our conclusion that the knowledge of the lack
of a reasonable basis may be inferred and
imputed to an insurance company where there is
a reckless . . . indifference to facts or to
proofs submitted by the insured.”
[Id. at 473 (quoting Bibeault v. Hanover Ins.
Co., supra, 417 A.2d 313, 319 (R.I. 1980)).]
2 The test is “essentially the same” when showing bad faith based
on “inattention to payment of a valid, uncontested claim.”
Pickett, supra, 131 N.J. at 473-74.
15
“Under the ‘fairly debatable’ standard, a claimant who
could not have established as a matter of law a right to summary
judgment on the substantive claim would not be entitled to
assert a claim for an insurer’s bad faith refusal to pay the
claim.” Ibid.IV.
The entire controversy doctrine, codified in Rule 4:30A,
provides in pertinent part:
Non-joinder of claims required to be joined by
the entire controversy doctrine shall result
in the preclusion of the omitted claims to the
extent required by the entire controversy
doctrine, except as otherwise provided by R.
4:64-5 (foreclosure actions) and R. 4:67-4(a)
(leave required for counterclaims or cross-
claims in summary actions).
This doctrine “‘embodies the principle that the
adjudication of a legal controversy should occur in one
litigation in only one court; accordingly, all parties involved
in a litigation should at the very least present in that
proceeding all of their claims and defenses that are related to
the underlying controversy.’” Highland Lakes Country Club &
Cmty. Ass’n v. Nicastro, 201 N.J. 123, 125 (2009) (quoting
Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989)). We
have previously expressed that the purpose of the entire
controversy doctrine “are threefold: (1) the need for complete
and final disposition through the avoidance of piecemeal
16
decisions; (2) fairness to parties to the action and those with
a material interest in the action; and (3) efficiency and the
avoidance of waste and the reduction of delay.” DiTrolio,
supra, 142 N.J. at 267 (citing Cogdell, supra, 116 N.J. at 15).
In determining whether a subsequent claim should be barred
under this doctrine, “the central consideration is whether the
claims against the different parties arise from related facts or
the same transaction or series of transactions.” Id. at 268.
“‘It is the core set of facts that provides the link between
distinct claims against the same parties . . . and triggers the
requirement that they be determined in one proceeding.’” Id. at
267-68. There is no requirement that there be a “commonality of
legal issues.” Id. at 271.
The “polestar of the application of the rule is judicial
‘fairness.’” Id. at 272 (1995) (quoting Reno Auto Sales, Inc.
v. Prospect Park Sav. and Loan Ass’n, 243 N.J. Super. 624, 630
(App. Div. 1990)). In considering whether application of the
doctrine is fair, courts should consider fairness to the court
system as a whole, as well as to all parties. Id. at 273-74.
Because plaintiff should have “‘a fair and reasonable
opportunity to have fully litigated that claim in the original
action,’” id. at 274 (quoting Cafferate v. Peyser, 251 N.J.
Super. 256, 261 (App. Div. 1991)), the doctrine “does not apply
to unknown or unaccrued claims.” Ibid. Put simply, “[f]airness
17
in the application of the entire controversy doctrine focuses on
the litigation posture of the respective parties and whether all
of their claims and defenses could be most soundly and
appropriately litigated and disposed of in a single
comprehensive adjudication.” Id. at 277.
V.
Res judicata, like the entire controversy doctrine, serves
the purpose of providing “‘finality and repose; prevention of
needless litigation; avoidance of duplication; reduction of
unnecessary burdens of time and expenses; elimination of
conflicts, confusion and uncertainty; and basic fairness[.]’”
First Union Nat. Bank v. Penn Salem Marin, Inc., 190 N.J. 342,
352 (2007) (quoting Hackensack v. Winner, 82 N.J. 1, 32-33,
(1980)). The principle “contemplates that when a controversy
between parties is once fairly litigated and determined it is no
longer open to relitigation.” Lubliner v. Bd. of Alcoholic
Beverage Control, 33 N.J. 428, 435 (1960). Application of res
judicata “requires substantially similar or identical causes of
action and issues, parties, and relief sought,” as well as a
final judgment. Culver, supra, 115 N.J. at 460. Thus, “[w]here
the second action is no more than a repetition of the first, the
first lawsuit stands as a barrier to the second.” Ibid.18
The test for identity of a cause of action is the most
difficult to determine. Id. at 461. To decide if two causes of
action are the same, the court must determine:
(1) whether the acts complained of and the
demand for relief are the same (that is,
whether the wrong for which redress is sought
is the same in both actions); (2) whether the
theory of recovery is the same; (3) whether
the witnesses and documents necessary at trial
are the same (that is, whether the same
evidence necessary to maintain the second
action would have been sufficient to support
the first); and (4) whether the material facts
alleged are the same.
[Id. at 461-62 (quoting United States v.
Athlone Indus. Inc., 746 F.2d 977, 984 (3d
Cir. 1984)) (citations omitted).]
VI.
We find the procedural posture of the case before us to be
identical to Culver, supra, 115 N.J. 451. In Culver, plaintiffs
sustained a fire loss to their home caused by a faulty gas
stove. Their homeowners’ coverage was insufficient to fully
compensate them for their loss. The plaintiffs entered into an
agreement with their insurance carrier under which they would
proceed jointly in an action against the tortfeasors responsible
for the fire (the manufacturer, seller and installer of the
stove). Under the subrogation agreement, the carrier would bear
all costs of the litigation, would be entitled to legal fees,
and any recovery would be divided with the carrier receiving
eighty percent (80%) and the insureds receiving twenty percent
19
(20%). Id. at 453. However, upon settlement of the action
against the tortfeasors, the plaintiffs refused to accept their
share of the proceeds, and the carrier moved against them in a
pending subrogation action to enforce the agreement. The
plaintiffs opposed the motion and cross-moved, proposing a
different allocation of the proceeds and alleging fraud and a
breach of fiduciary duty by the carrier and its counsel. Id. at
454.
The trial court rejected those defenses and granted the
carrier’s motion, ordering distribution of the settlement
proceeds to be made in accordance with the agreement entered
into by the parties. The plaintiffs thereafter filed a new
action against the carrier, alleging, as they had in their
cross-motion that their consent to the agreement was illegally
obtained, and that the carrier made misrepresentations and
breached its fiduciary duties to them. The new action sought
compensatory damages, attorney’s fees, interest, costs and a
“just and equitable settlement,” or more accurately, a
redistribution of the proceeds of the earlier action. Ibid.The carrier moved for summary judgment on the grounds that
the issues raised in the complaint were barred under res
judicata, which the trial court granted. On appeal, the
Appellate Division reversed. Culver v. Ins. Co. of N. Am., 221
N.J. Super. 493 (App. Div. 1987). Rejecting the application of
20
res judicata, the Appellate Division determined that the
subrogation agreement was not enforceable and that the insureds
were entitled to be paid the full extent of their loss from the
settlement proceeds. The carrier filed a petition for
certification, which this Court granted. Culver v. Ins. Co. of
N. Am., 110 N.J. 305 (1988).
This Court found that the acts complained of were the same,
since they involved conduct of the carrier allegedly amounting
to a breach of fiduciary duty, fraud, or misrepresentation
sufficient to warrant setting aside the agreement between the
parties. The Court further concluded that the material facts
surrounding the carrier’s alleged misconduct were identical, and
the same evidence would be necessary in both actions to
establish that misconduct. Culver, supra, 115 N.J. at 462. We
also noted that the relief sought in both actions was similar,
with each seeking to set aside the subrogation agreement to
obtain a distribution of the settlement proceeds that was more
favorable to the insureds. Accordingly, we determined that res
judicata applied to bar the second action against the carrier.
The matter is substantially similar to the case before us,
as plaintiff also seeks to relitigate an issue that was placed
before the trial court during the first litigation and already
fully litigated and determined by the trial court in that first
case.
21
Plaintiff’s second action seeking damages against NJM for
its alleged bad faith handling of his claim for UM benefits
involved the same alleged wrongs, the same theories of recovery
(NJM’s alleged breach of its duty of good faith and fair
dealing, warranting both consequential and punitive damages),
the same evidence (the “fact” that NJM refused to settle,
“forcing” plaintiff to take his case to trial because its
liability would not exceed the UM policy limit regardless of the
verdict), and the same alleged material facts as in the first
litigation. Thus, under the framework set forth in Culver, id.
at 461-62, we find the issues to be identical.
Plaintiff raised the exact issue during oral argument for
his motion to enter judgment for the full amount of the jury
verdict on September 17, 2007. Thereafter, the trial judge
addressed and disposed of that issue in his September 17, 2007
order and accompanying statement of reasons on that motion:
There is a question whether the issue of bad
faith has been properly raised since it was
not pled in this matter. In essence, the
plaintiff was asking the Court sua sponte to
make that determination based on the facts
before it. The only real basis for the claim
that defendants acted in bad faith is that NJM
refused to make any offer of settlement prior
to the trial. The jury found that the phantom
vehicle was the sole cause of the accident.
The arbitrators found significant liability on
the part of the plaintiff. Therefore, the
question of responsibility for the accident
must be considered as “fairly debatable,” and
the failure to make an offer of settlement
22
does not lead to the conclusion that NJM acted
in bad faith.
Having already been fairly litigated and determined, we
hold plaintiff’s bad faith cause of action is barred from
relitigation under the doctrine of res judicata.
We are not persuaded by the arguments of plaintiff and NJAJ
that bad faith claims should not be subject to motion practice
to decide the merits. All cases regardless of type or
complexity are amenable to motion practice to dismiss or for
summary judgment if properly supported by the evidence and law.
We find no reasoned basis to exempt bad faith cases.
VII.
Despite our disposition of plaintiff’s bad faith claim, we
separately consider plaintiff’s argument against application of
the entire controversy doctrine. Plaintiff maintains that his
bad faith claim against NJM should not have been barred by the
entire controversy doctrine because, as an “equitable doctrine,”
its application was unfair because NJM’s bad faith, for the most
part, came to light during the course of the underlying
litigation surrounding plaintiff’s UM claim. We agree that
barring such bad faith claims on the basis of the entire
controversy doctrine is inappropriate in the UM context.
While we acknowledge and reiterate the underlying goals of
the entire controversy doctrine -- to encourage complete and
23
final dispositions through the avoidance of piecemeal decisions
and to promote judicial efficiency and the reduction of delay,
DiTrolio, supra, 142 N.J. at 267 –- we find that the nature of
first-party bad faith claims warrants exemption from a harsh
application of this rigid doctrine. Acts of first-party bad
faith in the UM context can, and often will, continue throughout
the course of the underlying legal proceedings; that is, an
insurance carrier’s acts of bad faith may often not cease until
a verdict is returned, and this is only after the plaintiff has
been forced to fully litigate the matter through arbitration and
trial. Rather than forcing a plaintiff to amend the initial
complaint to add and reflect each incident of bad faith, we
believe that viewing bad faith claims as separate and distinct
actions promotes judicial efficiency and economy. We also note
the difficulties that will be encountered in the discovery
process by seeking information as to bad faith acts which may be
prohibited in the UM cause of action.
The question remains, however, whether fairness requires
that our court rules be modified to permit an insured to bring a
bad faith cause of action against an insurer after the
underlying UM claim is resolved. In our view, the goals of the
entire controversy doctrine are not served by mandating that the
plaintiff simultaneously file a first-party bad faith claim with
the underlying breach of contract/UM lawsuit. However, to
24
foster debate about whether our courts should allow first-party
bad faith claims to be asserted and decided after resolution of
the underlying, interrelated UM action, we refer Rule 4:30A to
our Civil Practice Committee for review.
VIII.
We further conclude that this case presents an ideal
opportunity to address the latent ambiguity that exists within
the Offer of Judgment Rule, R. 4:58.
Rule 4:58-2 provides that when a pre-trial offer is
rejected and the monetary award exceeds 120% of the offer, in
addition to costs of suit, the offeror is entitled to:
(1) all reasonable litigation expenses
incurred following non-acceptance; (2)
prejudgment interest of eight percent on the
amount of any money recovery from the date of
the offer or the date of completion of
discovery, whichever is later, but only to the
extent that such prejudgment interest exceeds
the interest prescribed by R. 4:42-11(b),
which also shall be allowable; and (3) a
reasonable attorney’s fee for such subsequent
services as are compelled by the non-
acceptance.”
[R. 4:58-2(a).]
Nevertheless, the rule, as currently written, does not
explicitly provide whether the jury’s verdict is the trigger for
the sanctions and remedies of Rule 4:58-2 or, conversely,
whether the molded judgment controls.
25
We find that the molding of a monetary jury award is
appropriate when done to conform with and reflect allocation of
liability. However, in the UM/UIM context, where reduction is
based not on a tortfeasor’s comparative negligence but instead
on the policy limits of a given carrier, we find that the
current construction of Rule 4:58-2 provides no incentive for
such carriers to settle. Rather, under the current rule,
carriers are prone to take their chances at trial where the
offer of judgment is somewhat near their policy limits because
they have relatively little to lose in doing so. Thus, the
rule’s required reduction of a monetary jury award artificially
to the policy limits renders moot any reasonable offer of
settlement by the insured below the 120% threshold; unless an
insured makes an offer of judgment that is unreasonably below
its policy limits, it is unlikely that an insurance carrier will
choose to settle the respective claim. In light of this, we
conclude that the aims of Rule 4:58-2, “to encourage, promote
and stimulate early out-of-court settlement,” Crudup v. Marrero,
57 N.J. 353, 357 (1971), are ill-achieved in the UM/UIM context
under the rule’s current construction.
Accordingly, we refer Rule 4:58-2 to the Civil Practice
Committee to consider and recommend an appropriate amendment
addressing this infirmity.
26
Lastly, we note that New Jersey Court Rules allow for
counsel fees to be awarded “in an action upon a liability or
indemnity policy of insurance, in favor of a successful
claimant.” R. 4:42-9(a)(6). However, with respect to
first-party insurance, such as UM/UIM coverage, the statutory
prescription for attorney’s fees is inapplicable. Rule 4:42-
9(a)(6) has not been extended to authorize a fee award to an
insured who brings direct suit against his insurer to enforce
any direct coverage, including UM/UIM coverage. We refer this
issue to the Civil Practice Committee for comments and
recommendations addressing the issue.
IX.
For the reasons stated herein, we affirm the judgment of
the Appellate Division.
CHIEF JUSTICE RABNER; JUSTICES ALBIN and SOLOMON; and JUDGE
CUFF (temporarily assigned) join in JUSTICE FERNANDEZ-VINA’s
opinion. JUSTICES LaVECCHIA and PATTERSON did not participate.
27
SUPREME COURT OF NEW JERSEY
NO. A-54 SEPTEMBER TERM 2012
ON CERTIFICATION TO Appellate Division, Superior Court
KWABENA WADEER and OFELIA
WADEER,
Plaintiffs-Appellants,
v.
NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,
Defendant-Respondent.
DECIDED February 18, 2015
Chief Justice Rabner PRESIDING
OPINION BY Justice Fernandez-Vina
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY
CHECKLIST AFFIRM
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA ---------------------- -------------------
JUSTICE ALBIN X
JUSTICE PATTERSON ---------------------- -------------------
JUSTICE FERNANDEZ-VINA X
JUSTICE SOLOMON X
JUDGE CUFF (t/a) X
TOTALS 5
1