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Frankel v. St. Paul Fire & Marine Insurance Company

October 17, 2000


Before Judges Baime, Carchman and Lintner.

The opinion of the court was delivered by: Lintner, J.A.D.


Argued September 20, 2000

On appeal from the Superior Court of New Jersey, Law Division, Atlantic County.

Defendant, St. Paul Fire and Marine Insurance Company (St. Paul) furnished plaintiff, Dr. Alan Frankel, a dentist, with professional liability coverage under its Professional Office Package. The policy reserved to the insurer the right to investigate, negotiate and settle any suit or claim. There was no provision requiring consent to settle on the part of the insured. St. Paul settled a malpractice claim against Dr. Frankel for $650,000. Thereafter, Dr. Frankel brought suit seeking compensable and punitive damages for failing to properly investigate and settle the claim, alleging St. Paul breached its duty of good faith and fair dealing.

The initial complaint was filed on February 1, 1995, which was followed by the filing of an amended complaint in August 1998. In September 1998, St. Paul filed a motion seeking summary judgment. A judge, other than the trial judge, granted St. Paul's motion dismissing the first and third counts only, leaving the second count which alleged St. Paul acted in bad faith by wrongfully settling a claim made against Dr. Frankel by a former patient. A jury trial commenced on October 19, 1998, before Judge Higbee. She dismissed Dr. Frankel's claims for punitive damages at the close of plaintiff's case and reserved on St. Paul's motion for involuntary dismissal after all the evidence was in. The jury returned a verdict in favor of Dr. Frankel, in the amount of $31,000, finding that St. Paul acted in bad faith in the settlement of the claim against Dr. Frankel. On December 11, 1998, the judge denied Dr. Frankel's motion for new trial, set aside the jury verdict and granted judgment in favor of St. Paul. Dr. Frankel appeals Judge Higbee's orders dismissing his claims for punitive damages at the close of evidence and granting St. Paul's motion for judgment notwithstanding the verdict. St. Paul cross appeals the order denying its motion for summary judgment. We affirm.

We briefly recite the basic facts. In April 1991, Dr. Frankel's patient, Donald Kaplan, a noted trial attorney, filed a claim with St. Paul alleging that Dr. Frankel negligently failed to diagnose a sizable cyst of the right mandibular body that had been apparent on an x-ray taken in May 1988. The mass was not discovered until approximately two and one half years later at which time it had spread, becoming much larger in size. Kaplan subsequently underwent surgical removal of the growth at the Hospital of the University of Pennsylvania. According to his medical malpractice expert, Dr. Fred Rosen, he was left with facial nerve damage and a serious speech defect. Kaplan alleged that the speech defect left him permanently disabled from functioning in his profession as a senior partner with Horn, Kaplan, Goldberg & Daniels, an Atlantic City law firm, specializing in representing insured defendants in civil litigation. Kaplan and his firm had represented St. Paul's insureds in other matters.

At the time of Kaplan's claim, St. Paul insured Dr. Frankel under a professional liability policy with limits of $1,000,000. The policy had no deductible and did not require St. Paul to obtain consent from Dr. Frankel in order to authorize settlement. The policy stated "We have the right to investigate, negotiate and settle any suit or claim if we believe that is proper." Kaplan's initial demand for settlement in the amount of $650,000 was conveyed to St. Paul on July 26, 1991. No counter offer was made and, within five months of receiving the initial claim, St. Paul paid Kaplan's demand.

During the trial Frankel offered the testimony of Haig G. Neville, an expert in insurance claims. Neville opined that St. Paul failed to adequately investigate and defend against Kaplan's claim. He testified that St. Paul did not meet the standards of the insurance industry concerning its investigation of the claim and communication with its insured. He concluded that St. Paul's bad faith resulted in Frankel's inability to obtain subsequent coverage in the secondary surplus market at a reasonable premium, thereby suffering damages.

St. Paul produced evidence that, in addition to the report of Dr. Rosen, it acquired a report from Dr. Joel M. Doner, a dentist who confirmed that the cyst was shown on x-rays as of May 1988, but could not delineate its size or give an opinion to a reasonable medical certainty that the nerve damage had occurred at the time of the initial x-ray. St. Paul's file also revealed conversations with an oncologist, Dr. Gene Resnick, and another dentist, Dr. Marvin Cohen. Dr. Cohen confirmed that the x-ray of 1988 revealed the cyst, and Dr. Resnick indicated that the cyst grew in the two and one-half years that it went undiagnosed. St. Paul's file also had a letter dated June 11, 1991, from Dr. Peter D. Quinn, the surgeon who removed the mass, confirming nerve injury, as well as a "thick tongue" type of speech which interfered with Kaplan's ability to practice law. St. Paul also met with and interviewed both Kaplan and Frankel and obtained information from Monarch Insurance, indicating that it had paid Kaplan's disability claim determining him to be 100% disabled.

Dr. Frankel contends that Judge Higbee erred when she 1) granted St. Paul's motion for judgment notwithstanding the verdict; 2) dismissed his claim for punitive damages at the close of plaintiff's proofs; 3) denied his motion for additur and counsel fees pursuant to R. 4:42-9(a)(6). St. Paul contends that the motion judge erred in refusing to grant its earlier motion for summary judgment on the second count of the amended complaint.

After a careful review of the entire record, we affirm substantially for the reasons stated by Judge Higbee in her written opinion of December 11, 1998. We are, however, compelled to add the following comments regarding the claim of bad faith and the legal duty imposed upon a liability insurer under the circumstances presented. Judge Higbee charged the jury in accordance with the standard set forth in Pickett v. Lloyd's, 131 N.J. 457 (1993). She instructed the jury that in order to establish bad faith they must find that St. Paul: 1) had no reasonable basis for settling the claim and 2) knew or recklessly disregarded the fact that there was no reasonable basis for settling as it did. In response to St. Paul's post trial motions she determined that the standard used to define bad faith to the jury was incorrect and that the proofs were insufficient to establish such a claim. She explained:

The verdict questions asked of this jury did not apply the proper standard. The "reasonable" standard of Pickett is not applicable in this type of case. The Court has considered granting a new trial with a different definition for the jury of what constitutes bad faith in this type of case. The Court finds, however, after hearing all the testimony that the facts here would not support a claim under the guidelines of the Supreme Court in the American Home,. . . [117 N.J. 1 (1989)] case.

Here, there was no proof that the insured suffered any losses other than an increase in premiums for a limited time. The insured's money was not at stake in paying the settlement and the defendant insurance company paid hundreds of ...

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