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Brooks v. Stoney


July 17, 2008


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-0298-03.

Per curiam.


Argued April 23, 2008

Before Judges Sapp-Peterson and Messano.

Plaintiff, Sheila Brooks, was a passenger in a motor vehicle operated by defendant, James Stoney, Jr. (Stoney), and owned by his father, James Stoney, Sr., that was involved in an accident with a stolen vehicle. The unidentified driver of the stolen vehicle fled the scene following the collision. At the time of the accident, Stoney was insured under his father's policy of insurance with defendant, New Jersey Manufacturers Insurance Company (NJM). The policy provided $500,000 in bodily injury liability coverage and $500,000 in uninsured motorist (UM) coverage.

Plaintiff filed a complaint in Superior Court alleging that she sustained serious bodily injury proximately caused by Stoney's negligence and the negligence of the driver of the uninsured vehicle. The third count of the complaint included a UM claim against NJM, demanding that NJM "set up an uninsured motorist claim, administrate same, and submit said claim to arbitration[.]" Shortly thereafter, Stoney also filed a complaint against NJM asserting a UM claim.

Plaintiff's complaint proceeded to mandatory, non-binding arbitration on March 2, 2004. The arbitrators awarded plaintiff $500,000 in gross damages, which she rejected. By order dated April 16, 2004, the court consolidated the Brooks and Stoney complaints for trial. By further order of April 15, 2005, the court bifurcated damages and the matter proceeded to trial on liability only. The jury allocated liability at fifty-five percent against Stoney and forty-five percent against NJM. As a result of the jury's verdict, the court entered judgment dismissing Stoney's UM claim against NJM with prejudice. We affirmed the dismissal of Stoney's complaint. Stoney v. New Jersey Mfrs. Ins. Co., No A-5719-04 (App. Div. June 19, 2006) (slip op. at 35). Stoney's petition for certification was also denied. 188 N.J. 357 (2006).

While Stoney's petition for certification was pending, plaintiff underwent additional surgical procedures and the parties continued exchanging discovery. Plaintiff's orthopedic expert was deposed and updated defense medical examinations were conducted.

By letter dated January 10, 2007, plaintiff's counsel formally demanded $500,000 to settle the UM claim. The letter stated it was plaintiff's "inten[tion] to assert a bad faith claim against NJM" if defendant did not tender the $500,000 maximum UM policy amount. Defendant's attorney made a combined bodily injury and UM settlement offer of $600,000. Plaintiff unsuccessfully tried to get defense counsel to break down the dollar allocation between the bodily injury claim and the UM claim. Plaintiff ultimately rejected the offer and demanded a gross award of $975,000.

On January 16, 2007, the court conducted a settlement conference, and NJM's combined settlement offer rose to $700,000. Plaintiff rejected this offer, and the court, at the request of counsel for both parties, permitted the parties to place their respective positions on the record. Defense counsel represented that he did not know how NJM would split the two claims. Because defense counsel did not provide a dollar allocation between the liability and UM claims, plaintiff's counsel stated on the record that NJM's settlement strategy constituted bad faith. On January 23, 2007, the parties settled the bodily injury claim against Stoney for the policy limits of $500,000. The next day, NJM offered $250,000 to settle the UM claim, which plaintiff rejected and demanded $475,000, to settle the UM claim.

With the percentages of liability established and plaintiff's claims against Stoney dismissed with prejudice because of the settlement, NJM moved for a trial adjournment in order to submit the damages claim to arbitration pursuant to the policy provisions that mandated contractual arbitration of the disputed UM claim. Plaintiff opposed the motion, arguing that defendant had waived its right to contractual arbitration. The court nonetheless granted the adjournment. The arbitrators awarded $800,000 in gross damages. A dissenting arbitrator awarded $1,100,000 in gross damages. Based upon the $800,000 award, NJM was liable for forty-five percent of that award, or $360,000. Plaintiff rejected the award and demanded a trial de novo. See R. 4:21A-6. Several days after plaintiff rejected the award, defendant offered plaintiff $300,000. Plaintiff rejected this offer and "continued her demand of $975,000." NJM did not agree to this demand and the matter proceeded to trial.

The jury awarded plaintiff $2,000,000. Prior to the entry of final judgment, the parties briefed whether the court should enter judgment against NJM in the full amount or a molded verdict to reflect the $500,000 UM policy limits, whether plaintiff was entitled to prejudgment interest, and whether NJM acted in bad faith in its settlement negotiations strategy. The court entertained oral argument and thereafter, in an oral opinion, found that NJM's negotiation strategy did not constitute bad faith and declined to award prejudgment interest. The court molded the verdict to reflect the UM policy limits. The present appeal followed.

On appeal plaintiff contends she is entitled to recover the full forty-five percent of the jury's $2,000,000 verdict because NJM engaged in bad faith in its settlement negotiation strategy with plaintiff.

Appellate review of a judgment entered in a non-jury case is a "limited function." Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). The appellate court will "not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Ibid. (citing Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)) (internal quotation mark omitted). However, we owe no such special deference to a trial judge's legal conclusions. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Plaintiff concedes that recovery against NJM for bad faith in its settlement negotiations cannot be based upon the Court's holding in Rova Farms because that holding involved a first-party claim brought by the insured plaintiff against the plaintiff's insurer. Supra, 65 N.J. at 499. Under the terms of the insured's policy, the insured was prohibited from attempting to settle the litigation on his own behalf. The Court held that the insurer bore a fiduciary relationship to its insured and that the insured may recover more than the policy limits when the insurer's refusal to settle results in a third-party obtaining a judgment against the insured that exceeds the policy limits. Rova Farms, supra, 65 N.J. at 499-501. Because NJM settled Stoney's liability claim with plaintiff, Stoney was not exposed to any excess liability. Instead, plaintiff argues that her entitlement is premised upon the Court's ruling in Pickett v. Lloyd's, 131 N.J. 457 (1993), decided nineteen years after Rova Farms, supra.

The plaintiff in Pickett, supra, a freight hauler for Superior Carriers, Inc. (Superior) for thirty-seven years, lost his tractor trailer truck in a highway accident in January 1987. Id. at 461. Pickett's seniority entitled him to a "choice or refusal of the day's work," which allowed him to choose more desirable and lucrative assignments. Id. at 461-62. Superior allowed drivers a sixty-day grace period to replace damaged vehicles and resume work without loss of seniority. Id. at 462. Superior extended that time for an additional thirty days for Pickett. Ibid. Although Pickett followed proper procedures, Lloyd's delayed payment about nine months after the accident, and Pickett lost his seniority status. Id. at 464.

Pickett filed a complaint alleging (1) negligent handling of his insurance claim, (2) breach of the insurance contract, (3) unfair and deceptive practices, (4) loss of income due to the inability to operate while the claim was processed, and (5) loss of seniority. Ibid. The jury awarded Pickett $70,000 and apportioned negligence liability to Lloyd's at forty percent, and to Peerless Insurance Agency, Inc., an agent of Lloyd's, at sixty percent. Ibid. The jury also found that Peerless was directly responsible to Pickett for its breach of the duty of good faith and fair dealing, outside of its agency relationship with Lloyd's. Ibid. We affirmed the award of extra-contractual damages, finding that a first-party insured can recover in tort when an insurer breaches its duty of good faith and fair dealing. 292 N.J. Super. 477, 490 (App. Div. 1991). The Supreme Court granted certification, 127 N.J. 563 (1992), and affirmed, supra, 131 N.J. at 481.

The Court described the issue as "whether recognizing a cause of action for bad-faith failure to pay an insured's first-party claim is consistent with the principles and policies of New Jersey insurance law." Pickett, supra, 131 N.J. at 466. In finding no conflict with existing principles and policies of New Jersey insurance law, the court acknowledged that "the regulatory framework [of insurance law] does not create a private cause of action, it does declare state policy and we do not think that finding a cause of action for the breach of the duty of good faith and fair dealing would conflict with that policy." Id. at 468. The Court reasoned that such a cause of action has a basis in both tort and contract, but that it was "best understood as one that sounds in contract." Id. at 470. The Court, however, cautioned that no bad faith liability in tort will arise if a claim is "fairly debatable." Id. at 473. In other words, the Court recognized that a bad-faith refusal to pay requires a plaintiff to "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." Ibid.

In the present matter we initially observe that although plaintiff sued NJM directly to compel arbitration on the UM claim because it refused to pay under the UM portion of the policy, plaintiff did not, as did the plaintiff in Pickett, supra, plead a bad faith claim nor seek consequential damages resulting from any alleged bad faith. Id. at 466. Additionally, despite the January 10, 2007 letter placing defendant on notice that such a claim would be asserted, plaintiff did not seek to amend her complaint to include a bad faith claim. Taddei v. State Farm Indemnity Co., ___ N.J. Super. ___, ___ (2008) (slip op. at 23). The trial court nonetheless addressed the claim on its merit and we do so as well.

The trial judge, in refusing to mold the verdict to reflect judgment against NJM for the full forty-five percent of the $2,000,000 verdict, acknowledged that "counsel for the plaintiff points out to a lot of extrinsic facts surrounding this matter, this Court is not privy to those." Nonetheless, the court concluded that even if NJM owed a duty to plaintiff, based on the facts that were presented to him, he found no breach of such duty:

Certainly there appears to have been a rational basis for the insurer's position. There was an arbitration award of $800,000, and that certainly seemed a reasonable amount. That the jury chose to impose recovery for a considerable amount more is what they found. I don't think anyone knew that, was in a position to know that and the fact that the defendants['], the plaintiff's position may have been that they always believed that the damages were in excess of a million dollars is neither here nor there. That's not something that is subject to any formula of proof.

Even if, however, it is determined that there was a duty owed to the plaintiff, based on the facts that have been present[ed] to me I don't see any breach of such duty.

While arbitration was sought by the plaintiff early on, it would appear that her medical treatment extended considerably beyond the date of that request. Certainly it would not make sense to try to arbitrate that until the medical needs have been ascertained and the extent of damages determined.

So I don't see how that could be bad faith and certainly the offers that the Court is aware of were consistent with the arbitration.

Nothing has been pointed out to me, quite frankly, other than possible bad faith that even closely would raise a duty to the plaintiff in this case, and I don't find that there was bad faith even if there was.

And, frankly, I see no basis therefore as to why the verdict should not be conformed to the policy limits.

In our view, the record before the trial court did not demonstrate "'the absence of a reasonable basis for denying benefits of the [UM] policy and [NJM'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)). Apart from the fact that plaintiff's UM claim was for unliquidated damages, as distinguished from liquidated property damages in Pickett, supra, two different panels of arbitrators valued the gross damages at $500,000 and $800,000 respectively. NJM's gross settlement offer of $700,000 can hardly be viewed as unreasonable. Plaintiff cites to no authority that required defendant to disclose the percentage allocation of the damages award offered or NJM's obligation to offer its full UM policy limits or even the amount awarded in any non-binding arbitration. Nor is there any requirement during a trial that a defendant produce meaningful evidence of a plaintiff's damages, cross-examine plaintiff's treating doctor, or call any witnesses. Nisivoccia v. Adernhill Associates, 286 N.J. Super. 419, 429 (App. Div. 1996) (observing that "[i]n civil[ ]trials, one party is not obligated to help the other party's case.") Plaintiff bears the burden of proof and the defense is under no obligation to present any evidence in its defense. Reichert v. Vegholm, 366 N.J. Super. 209, 213-14 (noting the general rule is that "'the burden of proof that the tortious conduct of the defendant [] caused the harm to the plaintiff's is upon the plaintiff.'") (quoting Restatement (Second) of Torts § 433B(1) (1965)). Indeed, a defendant without advancing any independent evidence, may use the proofs a plaintiff presents to establish that plaintiff has failed to satisfy the requisite burden of proof.

Plaintiff also contends that she is entitled to prejudgment interest in excess of the policy limits pursuant to Rule 4:42-11(b), premised upon her claim that defendant acted in bad faith in its settlement negotiations. In New Jersey Mfrs. Ins. Co. v. National Cas. Co., 393 N.J. Super. 340 (App. Div.), certif. denied, 192 N.J. 481 (2007), we held that a carrier may be found liable for prejudgment interest even if such payment exceeds the policy's coverage limit if the insurer acts in bad faith. 393 N.J. at 353. Because we conclude there is substantial credible evidence in the record demonstrating the absence of bad faith in defendant's settlement negotiations strategy, the trial court did not abuse its discretion in declining to award prejudgment interest.



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