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Ferriola v. IFA Insurance Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 19, 2009

CAROL FERRIOLA, AS ASSIGNEE OF RAMONA RIVERA, PLAINTIFF-RESPONDENT,
v.
IFA INSURANCE COMPANY, DEFENDANT-APPELLANT.

On appeal from Superior Court of New Jersey, Law Division, Monmouth County, No. L-2946-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 29, 2008

Before Judges Rodríguez, Payne and Waugh.

Defendant IFA Insurance Company appeals from a judgment in the amount of $4.2 million in favor of plaintiff Carol Ferriola, as assignee of IFA's insured Ramona Rivera. We reverse.

I.

On August 29, 1999, Ferriola was seated in the front passenger's side of a car driven along Route 35 in Keyport by her husband, John Ferriola. The Ferriola car was struck in the side by a car driven by Rivera, who had missed an exit ramp and attempted a u-turn from the shoulder, "T-boning" the Ferriola car. The Ferriola car turned over and Ferriola was ejected. She sustained severe injuries. She was seven months pregnant at the time. Her baby, a daughter, had to be delivered by cesarean section shortly after the accident. Ferriola's injuries required substantial medical treatment, including surgery.

Rivera was insured by IFA, under a $35,000 single limit policy. On September 10, 1999, Brian Drazin, Ferriola's attorney, contacted Rivera to notify her that he represented Ferriola and request that her insurance company contact him "or we [would] institute a lawsuit on September 17, 1999." Drazin also contacted IFA directly on September 10, 1999, informing it of his representation of Ferriola and warning that he would initiate a lawsuit without considering settlement if IFA did not respond in 30 days.

On September 22, 1999, IFA offered its full policy limit of $35,000 in settlement of all claims by Carol and John Ferriola for personal injury and property damage. In February 2000, Drazin asked whether Rivera had additional insurance. IFA responded that Rivera was only covered up to $35,000 and had no additional insurance. At Drazin's request, Rivera completed an affidavit to this effect on June 6, 2000.

Drazin contacted IFA on August 30, 2000, to determine if Rivera would voluntarily submit to discovery concerning any additional assets. IFA responded on September 13, 2000, confirming its prior offer to settle the matter for $35,000, the full amount of its policy, and declining to provide further information concerning Rivera's assets.

On November 10, 2000, Liberty Mutual Group, which insured the Ferriola car, sent IFA a subrogation claim in the amount of $11,055.50 for the property damage to the Ferriola vehicle. On November 20, 2000, IFA responded by informing Liberty Mutual that it had made a settlement offer to Drazin, but would be withdrawing the offer in light of Liberty Mutual's subsequent claim. Drazin was copied on that letter. Liberty Mutual also relayed the message to Drazin on February 5, 2001.

On April 6, 2001, Drazin informed IFA's claims department, in writing, that because Ferriola believed that Rivera had no assets, she would be willing to accept the $35,000 settlement, but that she would only provide a release for her own claim. Drazin made it clear that the release would "not apply to any potential claim which her child may some day assert" against Rivera. IFA responded on April 9, 2001, pointing out that it had never renewed its earlier offer to settle and directing Drazin to an IFA claims manager for further settlement discussions.

Drazin wrote to IFA again on April 9, 2001, seeking to settle Ferriola's claim for the policy limit. IFA wrote to Drazin on April 16, 2001, noting that, to date, Ferriola's medical expenses were $131,078 and her daughter's were $207,221. IFA proposed to divide the settlement by giving $15,000 to Ferriola, $15,000 to her daughter, and $5,000 to Liberty Mutual, in exchange for releasing Rivera from all three claims. On April 19, 2001, Liberty Mutual informed Drazin that it would waive its right to participate in Rivera's $35,000 policy, but would pursue Rivera directly for damage to the Ferriola car.

On May 14, 2001, Drazin wrote to IFA, stating that, because IFA had withdrawn its offer to settle with Ferriola for the full $35,000, he was rejecting the April 16th settlement proposal and would be filing suit. IFA responded on May 17, 2001, explaining why it had withdrawn the original offer, adding that it was IFA's "position to let a judge determine the division of the settlement between the mother and child" and noting that the judge would "then appoint an attorney to represent your client's daughter, in order to protect her interests since her parents have not."

Ferriola filed her complaint on August 24, 2001. IFA assigned the Law Offices of Jennifer M. Campbell to represent Rivera. The answer was filed on December 13, 2001. On December 26, 2001, John B. Krug, an attorney at the Campbell firm, contacted Rivera, urging her to obtain personal counsel because she faced substantial liability in excess of her insurance coverage. Rivera, who was 74 years old and living on Social Security, responded that she had no assets. She decided not to retain personal counsel. Krug wrote to Drazin on June 27, 2002, to inform him that Rivera had no personal assets and urge him to settle both the mother and child's claim.

On July 10, 2002, Liberty Mutual filed a complaint against Rivera seeking subrogation for the damages it paid to the Ferriolas for property damage to their car. Krug filed an answer on Rivera's behalf on October 9, 2002. The two cases were consolidated on November 22, 2002.

IFA filed a motion for leave to deposit the $35,000 policy amount with the court. On January 10, 2003, an order was entered granting IFA's motion. Liberty Mutual, apparently convinced that its action was futile, voluntarily dismissed its claim without prejudice on May 13, 2003.

On October 14, 2003, Ferriola's personal injury claim against Rivera, to which John Ferriola had been joined as a co-defendant, went to non-binding arbitration, which resulted in a $1.6 million award to Ferriola. John Ferriola, who was found five percent responsible for the accident, requested a trial de novo. He subsequently obtained summary judgment as to all claims and cross-claims against him.

On January 8, 2004, Drazin spoke with a different attorney from the Campbell firm, Nancy L. Callagher, and advised her that he intended to obtain a judgment against Rivera and then pursue a bad faith claim against IFA for failing to settle with Ferriola for the entire amount of the policy. He refused to settle for the policy limit absent an additional "bad faith premium."

Drazin proposed to Campbell that, in exchange for an assignment of Rivera's rights to file a bad faith claim against IFA, Ferriola would forgo seeking to collect any personal judgment against Rivera. Campbell informed Rivera of the proposal. Rivera was initially reluctant to agree.

Rivera, Campbell, and Drazin appeared in court on June 14, 2004, for a pretrial conference. Campbell had advised Rivera that Drazin's offer would be in her best interest and, at the conference, Rivera accepted. A hearing was held on the record to determine whether Rivera had any assets and to confirm her assignment of rights. On December 16, 2004, Rivera executed an assignment of rights memorializing the agreement of June 14, 2004.

The damages trial lasted from June 14 to 17, 2004, resulting in a jury award of $4,209,000 for Ferriola. On June 30, 2005, Drazin obtained an order permitting Ferriola to withdraw the $35,000 in partial satisfaction of the judgment.

On July 6, 2005, Ferriola, as Rivera's assignee, filed a complaint against IFA. The first count alleged that IFA breached its duty to Rivera to negotiate a settlement in good faith. The second count stated a claim sounding in negligence with respect to IFA's defense of Rivera. IFA retained counsel and an answer was filed on September 23, 2005. Both parties moved for summary judgment. Arguments were heard on September 7 and 8, 2007, and the motion judge rendered an oral decision on September 11, 2007.

The motion judge granted IFA's motion to dismiss the second count of Ferriola's complaint,*fn1 but denied the motion as to the first count. He also granted Ferriola's motion for summary judgment against IFA. He explained his reasons as follows:

What was before me are cross motions for summary judgment. There's a two count complaint filed by Mr. Drazin on behalf of his client as the assignee of Ms. Rivera for bad faith, and also a lack of representation. I'm paraphrasing, but that's basically the sum and substance of the charge. IFA contends they have no liability other than the $35,000. What we have though is the following.

At some point in time IFA made the decision to deposit their policy in court. I stated at oral argument and I reaffirm it today, the depositing of a policy in court is not a legal event when you have more than one potential claimant against the sum in question. If there was one plaintiff, then depositing the policy in court certainly is a dispositive issue with reference to the carrier's tender of their policy in a timely fashion. And it's indicative of good faith. That is not the case here.

This is a situation where the carrier, on their own -- And I make the following finding without any hesitation whatsoever. The claims manager for IFA, without the benefit of counsel, decided that they were going to get involved in a chess game with Mr. Drazin. And they thought that they were going to outsmart the plaintiff on this war of procedure. And the procedure is very simple. There's a rule, Rule 4:41, which involves the rule on interpleader. And it is not a suggestive rule, it is not a rule that may or may not be used, it's a mandatory rule.

And the rule is clear. Whenever a party is in possession of a sum of funds and there is more than one claimant, and the party who holds the funds acknowledges an obligation to make payment of the funds but is in a quandary as to who to pay them to, files an action in interpleader.

Now, there is very little case law because it is a cause of action which is rarely used. More times than not you have a single plaintiff and a single defendant and the action of the tender of the policy is sufficient to delineate the party's rights. Where you have multiple claimants or potential claimants, an interpleader is essential. And my law clerk and I were going through the cases, and there is a case. [Bankers Title & Abstract Co. v. Ferber Co., 15 N.J. 433 (1954)].

And what's interesting about this case is where an interpleader was filed by Bankers Title & Abstract -- And I'm not going to go into the facts of the case, but the syllabus as rendered by the Supreme Court ruled that a judgment of interpleader was entered requiring the plaintiffs, that is the person who had the money to pay into the Superior Court, and they relate to a sum of money. And then the judgment of interpleader, having been entered, exonerated the plaintiffs from any liability to the defendants.

And the case goes on, because the defendants, when you file an interpleader, are noticed. They're told that there is a sum of money at risk, that there are claims that must be made, that things must be adhered to, and they must undertake to preserve their position and their rights. And if once an interpleader is undertaken, then the parties are before the Court.

Now, should that have occurred in this case? Yes, it should. Because this Court, meaning me, is put in a situation now where the carrier sat idly by without any activity whatsoever. Because Ms. Campbell, and I want it perfectly clear, she owed no duty to IFA other than to represent their insured. And she realized it was a hopeless effort on her part because liability was not an issue and there [were] catastrophic injuries. IFA did nothing. And they knew the case was going to trial. The case went to trial. There was a verdict in approximately $4.3 million. And the carrier's position is we tendered the policy, so therefore we have no liability in excess of them. In excess of that sum.

I find that that is not a true position. I find that that is not an accurate position, and I find that IFA in proceeding without counsel did so at their own peril. They have counsel now, very able counsel. Unfortunately he was tendered by IFA damaged goods. This case as given to him, in my opinion, was [] mishandled internally by IFA. They have tremendous resources available to them, and they failed to use them.

Again, I make the absolute determination that somewhere in the claims process somebody decided they were going to get involved in a high stakes game of chess with Mr. Drazin. Well, IFA should have availed themselves then of competent counsel and proceeded accordingly. And they elected not to do so.

Having found that the interpleader is a mandatory procedure, having found further that Jennifer Campbell had no obligations to IFA other than to represent Ms. Rivera. And she did so. Because quite frankly, she obtained the best possible resolution for her client which was to get her out from under the potential of an excess verdict. And she did so.

I further find that there's absolutely no question that IFA knew exactly the predicament they were in and what they were going into. And they did so in a very cavalier fashion, because they misunderstood the legal ramifications of depositing a policy in court when there are multiple claimants. They're the ones that ran that up the flagpole time after time after time because they wanted the second release. And they never took any action to perfect that position.

We're in a situation now where I have these motions before me. Based on what I have put on the record, I make the following finding on the motions. With reference to IFA's motion that they are to be entitled to summary judgment, that motion is denied. With reference to the plaintiff's motion that they are entitled to a judgment to enforce the judgment as returned by the jury in the amount that was returned before Judge Neafsey and a jury, that motion is granted.

On the second count where IFA takes the position that, it's couched in terms not to be legal malpractice, but in effect that's what it is, I find that the proofs are deficient as to that and I am going to grant IFA's motion for that.

So there's no confusion. I am granting the plaintiff's motion for summary judgment with reference to their judgment as per the jury verdict. And I am denying IFA's motion for summary judgment in the amount of the policy, but I am granting their motion on the second count of the complaint as filed by the plaintiff.

Although the motion judge denied IFA's subsequent motion for reconsideration, he entered a stay pending disposition of this appeal.

II.

An appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007); Spring Creek Holding Co. v. Shinnihon U.S.A. Co., Ltd., 399 N.J. Super. 158, 180-81 (App. Div.), certif. denied, 196 N.J. 85 (2008); C.W. v. Cooper Health Sys., 388 N.J. Super. 42, 57-58 (App. Div. 2006). Generally, the court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co., 142 N.J. 520, 540 (1995); see also R. 4:46-2(c).

There can be no doubt that Ferriola's injuries resulting from the accident were catastrophic and that a settlement below the limit of Rivera's $35,000 liability policy would not take place, even without regard to the property damage claim made by Liberty Mutual and the potential claim for injuries sustained by the Ferriolas' daughter. Indeed, IFA never even attempted to negotiate a settlement below its policy limits. Instead, in furtherance of its duty to its insured, IFA attempted to settle all potential claims against Rivera at the policy limits so that its insured would not face any personal liability. The core issue here is whether IFA had a duty at some point to abandon its efforts torward a global settlement and, if so, whether it breached that duty.

The disposition of this case turns, in large part, on the principles set forth in Rova Farms Resort, Inc. v. Investors Insurance Co., 65 N.J. 474 (1974). The essence of a Rova Farms claim is that, if an insurer causes harm to its insured by failing to settle a claim within its policy limits through actions taken in bad faith, the insured has a claim against the insurer for any excess judgment.

[W]here under the policy the insurer reserves full control of the settlement of claims against the insured, prohibiting him from effecting any compromise except at his own expense, that reservation--viewed in light of the carrier's obligation to pay on behalf of the insured all sums up to the policy limit which he shall become obligated to pay--imposes upon the insurer the duty to exercise good faith in settling claims. [Id. at 492.]

Because of that duty, "'[a] decision not to settle must be a thoroughly honest, intelligent and objective one.'" Id. at 489-90 (quoting Bowers v. Camden Fire Ins. Assoc., 51 N.J. 62, 71 (1968)).

It is the insured's obligation, or in this case that of the insured's subrogee, to establish "'bad faith on the part of the insurer.'" Courvoisier v. Harley Davidson, Inc., 162 N.J. 153, 164 (1999) (quoting Yeomans v. Allstate Ins. Co., 130 N.J. Super. 48, 52 (App. Div. 1974)). Once such bad faith is established, a prima facie case of damages for the difference between the policy limit and the excess verdict has also been shown. It is then up to the insurer to demonstrate that settlement could not have been achieved within the policy limit or for the policy limit plus any amount the insured would have been able and willing to contribute. [Yeomans, supra, 130 N.J. Super. at 52.]

Once it appeared that an overall settlement resulting in a complete release for Rivera was not possible, IFA deposited the policy limits into court. R. 4:57-1. In Granduke v. Lembesis, 256 N.J. Super. 546, 551 (App. Div. 1992), we held that such a deposit into court "was consistent with [the insurer's] obligation to make a good faith settlement offer" under Rova Farms.*fn2

The motion judge premised IFA's liability for the excess judgment against Rivera on IFA's failure to file an interpleader action, R. 4:31, after depositing the funds in court. Rule 4:31 provides, in pertinent part, as follows:

Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability. It is not ground for objection to the joinder that the claims of the several claimants or the titles on which their claims depend do not have a common origin or are not identical but are adverse to and independent of one another, or that the plaintiff denies liability in whole or in part to any or all of the claimants. [(Emphasis added).]

We note, initially, that the rule is permissive, rather than mandatory as the motion judge inaccurately asserted. See Liberty Mut. Ins. Co. v. Cressman, 336 N.J. Super. 67, 70 n.1 (App. Div. 2000) (interpleader available to an attorney holding client funds to which the client's creditor asserts a claim).

There is nothing in either Rule 4:31 or Rule 4:57 requiring, or even suggesting, that, when the full amount of an insurance policy has been deposited in court, the insurer must file any interpleader action naming all of the multiple claimants under the policy. Had an interpleader action been filed by IFA in this case, the court would have had to determine the relative entitlement of the claimants to the fund in court, which would have necessitated either an overall settlement or a trial of the potential claims against Rivera, followed by a distribution of the $35,000 to the successful claimants in proportion to their overall recovery.*fn3 An interpleader action would not have extinguished claims against Rivera in excess of the policy limits.

If there had been a settlement, something that had so far proved unachievable, the maximum available for distribution would have been limited to the $35,000, unless the apparently judgment-proof Rivera voluntarily offered some of her meager personal funds to achieve a settlement. IFA had no obligation to provide additional funds to achieve a settlement beyond what it had already paid into court, nor, absent a realistic possibility of a settlement slightly above the $35,000, did it have an obligation to persuade Rivera to make a contribution from her own funds, if any. Ferriola's reliance on Courvoisier in that regard is misplaced.

Had there been a trial, there would have been one or more excess verdicts against Rivera. At least one of them, Ferriola's, would undoubtedly have been significantly in excess of the policy. Inasmuch as Drazin himself had raised the issue of a potential claim by the Ferriolas' daughter, the judge handling the matter would have had to appoint a guardian ad litem to represent the daughter's interest, which might have resulted in a premature adjudication of her claim.

Consequently, we hold that IFA had no obligation to initiate an interpleader action and that its failure to do so cannot be considered an indicia of bad faith. Having determined that the motion judge improperly granted Ferriola's motion for summary judgment, we turn to the issue of whether he should have granted IFA's motion for summary judgment as to Ferriola's bad faith claim.

Although both Ferriola and the motion judge viewed IFA's actions as having been taken in bad faith, we do not. IFA offered to settle for the policy limits shortly after it became aware of the claim, and only withdrew the offer, well over a year later, after it learned that Liberty Mutual had asserted a subrogation claim arising out of its payment of the Ferriola's property damage claim. It then learned that the Ferriolas' daughter had a potential claim. Although Ferriola now asserts that her daughter has no viable claim, Drazin was unwilling to release the potential claims as part of a settlement for the policy limits. He took that position in letters dated April 6, 2001, and May 14, 2001. We see no indicia that IFA's continuing attempts to obtain a complete settlement for its insured was motivated by bad faith. IFA never sought to pay less than its policy limits.

III.

Consequently, we reverse the judgment entered in favor of Ferriola and remand to the trial court for entry of summary judgment in favor of IFA.

Reversed.


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