January 20, 2009
ALLEN WILLIAMS, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
STATE FARM INDEMNITY COMPANY, DEFENDANT-RESPONDENT/ CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-4430-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 16, 2008
Before Judges Winkelstein, Fuentes and Gilroy.
Plaintiff, Allen Williams, was injured in a car accident he alleged was caused by the negligence of the driver of a phantom vehicle; his car had no physical contact with that vehicle. Plaintiff was insured by defendant, State Farm Indemnity Company, and his policy included uninsured motorist (UM) coverage in the amount of $100,000 per person. After plaintiff made a claim for UM benefits, arbitrators found him and the phantom driver each fifty percent at fault. The arbitrators valued plaintiff's damages at $250,000, resulting in a net award to plaintiff of $125,000.
After State Farm rejected the arbitrators' decision, plaintiff filed a UM action against State Farm. The trial court ruled that the parties were bound by the arbitrators' liability determination, but were entitled to a jury trial as to damages; the jury returned a verdict of $3,052,000 for plaintiff. The trial court remitted the verdict to $1,400,000, and molded it to the $100,000 policy limits. The trial court rejected plaintiff's argument that State Farm acted in bad faith by rejecting plaintiff's prior offer to settle the case for the policy limits.
On appeal, plaintiff claims that the trial court erred by rejecting his bad faith claim, and that it was error to remit the jury verdict and to mold it to the policy limits. State Farm cross-appeals, arguing that the judge erred in concluding that the arbitrators' liability determination was binding. We affirm the final judgment and dismiss State Farm's cross-appeal.*fn1
On June 30, 2000, plaintiff was injured in an automobile accident in Edison. According to the police accident report, plaintiff "was traveling in the right lane when [his] vehicle traveled to the right, onto the right shoulder where it overturned. The vehicle came to rest in the center lane." At the scene of the accident, plaintiff told the investigating officer, "I don't know [what happened,] I lost control." Plaintiff did not tell the officer that he was cut off by another vehicle. Four months after the accident, the officer revised the police report after receiving a "more detailed statement" from plaintiff, which stated: "[w]hile in the right lane a vehicle cut me off. I tried to avoid the vehicle by applying my brakes, doing so my vehicle went out of control[,] veered to the right and flipped over."
As a result of the accident, plaintiff suffered injuries to his scalp, face and hand. His scalp required surgery; and his left pinky was crushed, requiring partial amputation. Skin was grafted from his thigh to his pinky. After he was discharged from the hospital, he underwent three or four additional surgeries to reduce the scarring to his scalp. His pain from the surgeries was "[i]ndescribable," lasting two to three months; he was unable to do "physical work" for six months to a year after the surgeries. He has residual headaches.
We first address plaintiff's bad faith arguments. An insurance company owes a duty of good faith to its insured in processing a first-party claim. Pickett v. Lloyd's, 131 N.J. 457, 467 (1993). It may be liable to a policyholder for its bad faith failure to pay benefits. Id. at 481; see also N.J.S.A. 17:29B-4(9)(f) (prohibiting unfair insurance practices, including, "Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.").
If a claim is "fairly debatable," bad faith is not established. Pickett, supra, 131 N.J. at 473. 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. The insurer must have no valid reason to deny benefits or delay processing of the claim, and must have known or recklessly disregarded the fact that no reasonable basis existed for denying the claim. Ibid.
This court recently addressed the "fairly debatable" standard in a case similar to this one. In Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 451 (App. Div. 2008), the plaintiff was injured in a car accident allegedly caused by the negligence of the driver of a phantom vehicle with which the plaintiff's vehicle had no contact. The plaintiff's policy included $100,000 per person UM coverage limits. The plaintiff made a claim against State Farm; efforts to resolve the case were unsuccessful; State Farm rejected an arbitration award in favor of the plaintiff; the plaintiff filed a complaint against State Farm for personal injury damages, but did not allege bad faith; and, the jury returned a verdict for the plaintiff in the amount of $2,500,000. Id. at 451-52.
Although we affirmed the trial court's refusal to address the plaintiff's belated bad faith claim, we examined the "fairly debatable" standard. We expressed our "reservation as to whether Pickett's 'fairly debatable' formulation, based on the summary judgment standard, should apply when evaluating good faith in failing to settle an unliquidated bodily injury claim, as opposed to an undisputed property damage claim," which was the claim at issue in Pickett. Id. at 462. We suggested that the question should not simply be whether the claim is "fairly debatable," but rather, "whether there is sufficient evidence from which reasonable minds could conclude that in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable." Ibid. (internal quotation omitted).
Here, plaintiff failed to allege bad faith in his complaint. Nevertheless, he raised the issue in a post-trial motion, and the trial court rendered a decision on the merits of the claim, rejecting plaintiff's arguments. Thus, the issue is properly before us. That said, we agree with the trial judge that State Farm's refusal to settle plaintiff's claim for the policy limits did not constitute bad faith.
Applying Pickett's summary judgment formulation of the "fairly debatable" standard, plaintiff could not have prevailed on summary judgment on his substantive claim. A genuine issue of material fact exists as to whether a "phantom" driver was involved in the accident. On the day of the accident, plaintiff told the police that he did not know what had happened and that he "lost control" of his car. The investigating officer testified that plaintiff appeared coherent at the time of his statement. It was not until four months after the accident that plaintiff contacted the police to report that he had been cut off by another vehicle, causing him to loose control of his car. Furthermore, State Farm obtained an accident reconstruction report, which concluded that no evidence indicated that plaintiff had been cut off by another vehicle. Thus, valid, debatable reasons existed for State Farm not to pay the demanded policy limits.
Even applying the standard contemplated by the Taddei court, that is, whether there is sufficient evidence from which reasonable minds could conclude that State Farm acted unreasonably in the investigation, evaluation and processing of plaintiff's claim, plaintiff cannot establish a bad faith claim. The police report and the accident reconstruction report provide sufficient evidence for State Farm not to have paid the policy limits; thus its rejection of plaintiff's settlement offers was not unreasonable.
Plaintiff also relies on Rova Farms Resort, Inc. v. Investors Insurance Company, 65 N.J. 474 (1974), in support of his argument that the insurance company's bad faith refusal to settle the case for the policy limits entitles plaintiff to punitive damages. That argument is misplaced. Rova Farms was a third-party bad faith case, not a first-party claim as is the case here. As we have previously expressed, Rova Farms and its progeny do not apply in the UM context, where "the insured is the claimant and, therefore, not exposed to an award in excess of the policy limits." McMahon v. N.J. Mfr. Ins. Co., 364 N.J. Super. 188, 193 (App. Div. 2003).
Next, we turn to whether the trial court erred by molding the judgment to plaintiff's UM policy limits. "It is common practice in New Jersey to reduce the jury's damages award in a UM/UIM case to reflect the policy limits of one's UM/UIM coverage." Taddei, supra, 401 N.J. Super. at 463; see also McMahon, supra, 364 N.J. Super. at 190-91 (upholding motion judge's molding of $500,000 jury verdict to $175,000 policy limit, plus interest, fees and costs under offer of judgment rule). In Taddei, supra, affirming the trial court's authority to mold the jury's $2,500,000 verdict to $100,000, the amount of the policy limits, we explained,
UM and UIM cases are first-party contract claims against insurers, but they are generally tried as if they were third-party tort actions with the insurer standing in for the uninsured or underinsured tortfeasor. Cynthia M. Craig & Daniel J. Pomeroy, New Jersey Auto Insurance Law, § 23:3-3 at 416 (2008). For that reason, jurors are not made aware of the insured's existing insurance policy coverage. Thus, courts have appropriately recognized the need to mold jury verdicts in these cases to reflect the rights and duties of the parties under the insurance policy. We find no error in the judge's action in molding the verdict.
[Id. at 464 (citation omitted).]
We agree with that analysis and conclude that the trial court correctly molded the verdict to the policy limits. That renders moot plaintiff's argument that the court improperly remitted the verdict.
We affirm the judgment and dismiss State Farm's cross-appeal.