On Appeal From The United States District Court For The District Of New Jersey -- Camden. (D.C. Civil No. 80-01141).
Gibbons and Hunter, Circuit Judges, and Pollak,*fn* District Judge.
Joseph and Loretta Polito appeal from a final judgment entered on a jury verdict and from an order denying their motions for a new trial, for judgment notwithstanding the verdict, and for assessment of counsel fees, in their suit against Continental Casualty Company, a fire insurance underwriter which insured their home. They contend that the trial court erred in refusing to submit their case to the jury on a breach of contract theory, in refusing to submit to the jury their claim for intentional infliction of emotional distress, and in refusing to award counsel fees pursuant to N.J.Ct.R. 4:42-9(a)(6). They also contend that the jury verdict against them on the claims which were submitted is against the weight of the evidence and should be set aside. We hold that the court should have submitted the case to the jury on a contract theory which would have justified an award of pre-judgment interest, and that attorneys fees should have been awarded under N.J.Ct.R. 4:42-9(a)(6). Thus we remand for further proceedings.
Continental issued a New Jersey standard fire insurance policy covering the Politos' home for the period October 11, 1978 to October 11, 1979. In April of 1979 the home was damaged in a fire and the Politos filed a claim, which was eventually settled. On September 6, 1979 a second fire occurred, which substantially destroyed the home and its contents. The Politos notified Continental, but were unsuccessful in obtaining a satisfactory payment. They hired Guardian Adjustment Service, a public adjuster, to complete and submit a proof of loss. Guardian on October 24, 1979, filed a proof of loss for the building and a demand for an appraisal.*fn1 Two other proofs of loss were filed on December 13, 1979, one for the contents of the dwelling and one for additional living expenses incurred as a result of the fire. Continental's response, or lack thereof, to the proofs of loss and demand for appraisal is at issue in this case.
On April 21, 1980 the Politos filed a five count diversity action against Continental, seeking money damages and attorneys fees for breach of contract, breach of Continental's duty to deal with an insured fairly and in good faith, breach of Continental's fiduciary relationship toward its insureds, fraud, and intentional infliction of emotional distress. The complaint also sought specific performance of the appraisal provisions of the policy, and damages for breach of that provision. The court issued an order directing Continental to show cause on May 2, 1980 why it should not be ordered to comply with the appraisal procedure of the policy. No one appeared for Continental, and the court, after hearing argument on the Politos' behalf, ordered an appraisal. That appraisal, which dealt only with building damage, resulted in a determination that the loss was $30,829. On November 26, 1980 Continental tendered a draft for that amount, on which it inserted the language:
It is understood acceptance of this payment constitutes a full and final release of all claims for fire damage to the dwelling only.
Since they had other claims pending, the Politos rejected that draft. Eventually the parties returned to the court, and after negotiations agreed to the entry on April 15, 1981, of an order requiring Continental to pay $30,829 representing the amount awarded by appraisers with respect to the building loss with the understanding that plaintiffs' causes of action, other than the building loss, would continue. (Appendix of Appellants at 189A). An unconditional draft for $30,829.00 was issued on April 21, 1981.
About the time this draft was issued, Continental filed a motion for an order compelling the Politos to submit to an appraisal as to the building contents loss. By then a pre-trial conference had taken place, and according to the pre-trial order the Politos sought $11,784.00 for contents, and $9,600, the policy limits, for additional living expenses. The pre-trial order indicates that the $9,600 claim was not disputed, (Appendix of Appellants at 45A) but that Continental disputed the $11,784.00 contents claim, for which the policy limit is $24,000. (Appendix of Appellants at 44A). An appraisal was ordered, and the building contents loss was fixed at $15,370.00. On May 20, 1980 Continental issued separate drafts for $15,370.00 and $9,600.00.
On June 19, 1981 Continental moved for summary judgment. The court denied that motion and proceeded to trial before a jury. Before testimony began, however, the court granted Continental's motion to exclude from the jury the issue of intentional infliction of emotional distress. Later in the trial the court, pursuant to Fed. R. Civ. P. 51, considered requests to charge. The court ruled that it would not submit the case to the jury on a breach of contract theory. (Appendix of Appellants at 107-109A; 128-129A). It ruled instead that there could be recovery even above the policy limits on a tort theory if Continental acted in bad faith. (Appendix of Appellants at 111A). The court also refused to charge that recovery for consequential damages due to delay could be awarded for a breach of fiduciary duty. (Appendix of Appellants at 115-117A; 129A). Instructed only on the tort theory that Continental acted in bad faith in withholding payment, the jury returned a general verdict of no cause of action. A judgment in favor of Continental was entered on the verdict. Post-trial motions for a new trial, for judgment notwithstanding the verdict, and for an award of attorneys fees were denied, and this appeal followed.
The breach of contract on which the Politos rely is Continental's failure to adhere to the proof of loss, appraisal and payment provisions of the policy. From the evidence the jury could have found that the Politos submitted a proof of loss and demand for an appraisal on October 24, 1979, and that other proofs of loss were filed in December, 1979. The evidence suggests that it was not until January 17, 1980 that Continental even acknowledged the claim. Its letter did not agree to an appraisal, but offered to pay $28,861 for the building and approximately $4,700 for the contents. It also advised the Politos that they should not continue residing at a motel because from November 27, 1979 forward Continental would honor only reasonable expenses of a house rental. So far as this record discloses there were no other responses to the demand for appraisal or the proofs of loss until after the complaint was filed. Thus the jury could have found that by delaying the appraisal process and by delaying in making payment of the additional living expense claim on which it never even sought an appraisal the Company breached the insurance contract.
Most states recognize two types of remedies when an insurer fails to settle claims made against it by the insured party. The traditional remedy is for breach of contract. See Bess and Doherty, Survey of Bad Faith Claims in First Party and Industrial Proceedings, 1982 Ins. Counsel J. 368. Under recent developments in tort law, an insurer can also be sued in tort for failure to settle a claim in good faith. Id.
Under a contract theory the insured is generally denied consequential damages for failure to pay the loss, because in a suit for money due under a contract, recovery is limited to the debt plus interest. See Note, The Availability of Excess Damages for Wrongful Refusal to Honor First Party Insurance Claims -- An Emerging Trend, 45 Fordham L. Rev. 164, 167 (1976). Punitive damages are not generally available in a breach of contract action. Some courts, recognizing that the parties to insurance contracts do not have equal bargaining power, and that insurance companies, if liability is limited to the amount of the loss plus interest, are encouraged to take advantage of the insured by delaying payments, have awarded consequential damages for breach of contract. E.g., Reichert v. General Insurance Co. of America, 59 Cal. Rptr. 724, 428 P.2d 860 (1967), vacated on other grounds, 68 Cal. 2d 822, 442 P.2d 377, 69 Cal. Rptr. 321 (1968). See also Asher v. Reliance Insurance Co., 308 F. Supp. 847 (N.D.Cal. 1970); Lawton v. Great Southwest Fire Insurance Co., 118 N.H. 607, 392 A.2d 576 (1978). New Jersey, however, does not thus far appear to depart from the general rule excluding consequential damages.*fn2
New Jersey courts, however, have long followed the doctrine that an insurance company defendant is liable for interest on a claim from the date on which payment was due under the policy. See United Deliveries, Inc. v. Norwich Union Fire Insurance Soc., 133 N.J.L. 393, 399, 44 A.2d 185, 188 (E. & A. 1945) (insurer accepted liability for part of loss due to theft and paid claim but denied liability as to remainder of claim; court held unpaid balance was a liquidated claim and defendant was liable for interest).
In Rova Farms Resort, Inc. v. Investors Insurance Co., 65 N.J. 474, 323 A.2d 495 (1974), following a jury verdict in excess of the policy limits in a personal injury case, the insured brought an action against the insurer for lack of good faith in failing to settle the claim within the policy limits. The New Jersey Supreme Court, noting that a wrongful failure to settle an insurance ...