Insurance companies have the right to challenge and deny claims that are fairly debatable without subjecting themselves to bad faith liability even though their ultimate decision may be held by the court to be erroneous. The concept of fair debatability can apply to legal and factual issues. As an example, a legitimate coverage defense to a claim may foreclose bad faith liability especially when the coverage defense involves an open legal question where the forum jurisdiction has not decided the legal issue. A close corollary to the fair debatability defense is the genuine dispute defense. Like fair debatability, a genuine dispute can exist as to fact or law. Typically, when an issue of law is the focus of fair debatability or the presence of a genuine dispute, established case precedent is involved. However, the New Jersey Supreme Court recently found that an insurer’s reliance on an unpublished decision supported a fair debatability defense.
Under New Jersey law, like most jurisdictions, unpublished case authorities have no legal precedential value due to the unpublished nature of the decision. In fact, often the parties are precluded from using unpublished authorities in their briefing. As an example, New Jersey Rule 1:36-3 provides that “[n]o unpublished opinion shall be cited to any court by counsel unless the court and all other parties are served with a copy of the opinion and of all contrary unpublished opinions known to counsel.” States are split on the issue of whether unpublished opinions can be cited by the parties and under what circumstances they can be cited.
The New Jersey Supreme Court in Badiali v. New Jersey Mfrs. Ins. Group, 220 N.J. 544, 107 A.3d 1281 (2015), recently held, as a matter of first impression, that the existence of an unpublished opinion allowed the insurance company to avoid a finding of bad faith for the actions taken by the insurance company in accordance with the holding of the unpublished opinion. The Badiali case involved a uninsured motorist (UM) claim. The insured was covered under two insurance policies. First, the insured was covered for UM coverage under his personal policy with New Jersey Manufacturers Insurance Group (NJM). The insured was also covered for UM coverage under his employer’s policy issued by Harleysville Insurance Company (Harleysville). The insured presented a UM claim to both insurers. The claim proceeded to arbitration and resulted in an arbitration award of $29,148.62 in favor of the insured. Harleysville paid half of the arbitration award ($14,574.31) as it was contractually and statutorily obligated to do under New Jersey law. See N.J.S.A. § 17:28-1.1(c). NJM, however, rejected the award and demanded a trial de novo. NJM relied upon its policy language which allowed either party to dispute any arbitration award where the total amount exceeded $15,000. Although NJM’s 50 percent share of the arbitration award did not exceed $15,000, NJM relied upon the total of the arbitration award which did exceed $15,000 in making its demand for a trial de novo.
The insured instituted a summary proceeding under New Jersey law which allowed the court to confirm the arbitration award. The trial court confirmed the arbitration award finding that NJM was liable for $14,574.31 notwithstanding the fact that the total arbitration award exceeded that amount. The Appellate Division affirmed the trial court’s finding. The insured then sued NJM for bad faith alleging that it erroneously demanded a trial de novo when the arbitration award did not exceed $15,000.
There was established New Jersey precedent in the underinsured motorist (UIM) context which indicated that the extent of the insurer’s UIM liability determined whether the case had sufficient magnitude to justify a trial as opposed to the extent of the specific carrier’s liability vis-à-vis the total liability. See D’Antonio v. State Farm Mut. Auto. Ins. Co., 262 N.J. Super. 247, 249-50, 620 A.2d 1060 (App. Div. 1993).
In the bad faith lawsuit, NJM moved for summary judgment arguing that it did not act in bad faith because it relied on a 2004 unpublished decision in which the Appellate Division held, under essentially the same circumstances, that the insurance company (also NJM), was entitled to reject the arbitration award at issue and demand a trial de novo. See Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App. Div. Mar. 22, 2004). While NJM conceded that the unpublished Geiger decision lacked any precedential authority, NJM asserted that its mere existence proved that NJM’s conduct was reasonable, fair, and honest, and that NJM had a fairly debatable reason for rejecting the arbitration award at issue and seeking a trial de novo. The trial court ruled in favor of NJM and the Appellate Division affirmed. The New Jersey Supreme Court granted the petition for certification and then affirmed both the trial and Appellate Division.
The New Jersey Supreme Court noted that while it was citing the unpublished Geiger decision, it did not rely upon the unpublished decision. What the Court found was that the mere existence of the unpublished opinion allowed NJM to avoid a finding of bad faith for the actions it took in accordance with the holding of the unpublished opinion. Placed in the context of the facts before it, the Court held that “the existence of the Geiger opinion establishe[d] that NJM had, at the very least, fair reason to believe that it was making a legitimate legal and business decision by rejecting the arbitration award . . . and seeking trial.”
The Court found that it would be illogical to suggest that NJM could not rely on a previous unpublished opinion—essentially one in which NJM was specifically involved—in forming its decision. The Court observed “[h]aving pursued a similar course of action in Geiger with the approval and endorsement of the Appellate Division, we find it was reasonable for NJM to maintain that same position, under nearly identical facts, in rejecting the arbitration award in the instant litigation. To clarify, NJM had adequate reason to believe that its conduct was consistent with judicially accepted contract interpretation, corporate policies and practices.”
Although the Badiali Court suggested that its holding might be limited to those situations where the insurance company was a party to the proceedings that led to the unpublished opinion, there is no reason to limit the holding in that fashion. Although attorneys may not be able to cite unpublished decisions to the courts in their state, the unpublished decision does demonstrate that an impartial judicial body had considered the same or similar facts and, on those facts and law, reached a similar or same conclusion that the insurance company did. That should be, by definition, the essence of “fair debatability” and reason to believe that a “genuine dispute” exists between the assertions of the insured and the response of the insurance company.
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