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Taddei v. State Farm Indemnity Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


January 21, 2010

LEONA C. TADDEI AND MARGARET TADDEI, HIS WIFE, PLAINTIFFS-APPELLANTS,
v.
STATE FARM INDEMNITY COMPANY, KATHLEEN SAVASTANO AND JENNIFER KARSKO, DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-6655-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 4, 2010

Before Judges Lisa, Baxter and Alvarez.

This appeal involves the application of the entire controversy doctrine. In particular, we now resolve the question left open in our opinion in Taddei v. State Farm Indem. Co., (Taddei I), 401 N.J. Super. 449 (App. Div. 2008), namely whether a plaintiff, whose uninsured motorist (UM) claim proceeds to verdict against the tortfeasor, is barred on entire controversy grounds from filing a subsequent complaint against the insurer and its claims adjusters alleging their bad faith in not settling plaintiff's UM claim and forcing him to trial. We now answer that question in the affirmative. We therefore affirm the Law Division's January 6, 2009 order that dismissed plaintiffs' August 20, 2007 complaint on entire controversy grounds. The Law Division judge did not abuse his discretion when he concluded that plaintiffs' failure to plead their bad faith claim in the original 2005 complaint precludes a separate and independent action alleging bad faith involving the very same accident that was the subject of the 2005 complaint and an ensuing January 2007 jury trial. We therefore affirm the dismissal of plaintiffs' 2007 complaint.

I.

On July 18, 2001, plaintiff Leona Taddei lost control of his vehicle and crashed into the concrete divider on the roadway when he was cut off by a pickup truck operated by a driver who left the scene of the accident. Because the identity of the tortfeasor was unknown, plaintiff placed his own insurance carrier, defendant State Farm Indemnity Company (State Farm), on notice on November 4, 2001 of a potential UM claim under his $100,000 policy.

Plaintiff's treating physician diagnosed him as suffering from, among other things, a herniated disc in the lumbar spine, several bulging discs in the cervical spine, as well as a right shoulder rotator cuff tear. Plaintiff underwent conservative treatment, which included a minimally invasive neurosurgical procedure that was not successful. Plaintiff was subsequently examined by a physician on behalf of State Farm (IME), who opined that the "treatments [rendered] were necessary and appropriate for [plaintiff's] diagnoses."

On October 30, 2003, State Farm notified plaintiff that it would not "honor" his UM claim because plaintiff was at fault for the accident and therefore barred from presenting a claim. After receiving State Farm's October 30, 2003 letter, plaintiff requested a UM arbitration, and also renewed his request that State Farm consider settling his claim. A March 21, 2005 arbitration proceeding resulted in a finding that the uninsured motorist was 100% responsible for the accident; the arbitrators awarded plaintiff $92,500 as compensation for his injuries.

In response to the March 21, 2005 arbitration award, State Farm tendered $50,000 to plaintiff, accompanied by a letter explaining that its efforts to resolve plaintiff's UM claim through negotiations "were not successful and appear to have reached an impasse." State Farm explained that under those circumstances, it had decided to issue payment in the amount of $50,000 "without prejudicing [plaintiff's] right to receive a higher amount in the future through continuing negotiation or alternative means of resolution." The letter closed with a statement that State Farm would keep the claim "open subject to a final determination of damages."

On April 14, 2005, plaintiff replied to State Farm's letter, arguing that his case was worth "substantially more" than his $100,000 policy, that the $92,500 arbitration award was not excessive, and that although he preferred to settle the case, he would not settle for the $50,000 State Farm previously sent.

On April 25, 2005, plaintiff filed suit against State Farm alleging that he had sustained personal injuries as a result of the negligence of the uninsured tortfeasor.*fn1 The complaint sought first-party damages from defendant State Farm. Notably, the complaint did not allege bad faith on the part of State Farm in its handling of the settlement negotiations or in its evaluation of his UM claim; the allegations of the complaint were confined to plaintiff's cause of action against the tortfeasor for personal injury.

On May 24, 2006, plaintiff and State Farm engaged in mandatory court-ordered arbitration. The arbitrator, like the three who had conducted the earlier arbitration, found the uninsured driver to be 100% responsible for the accident and awarded plaintiff damages of $87,500. State Farm rejected the arbitration award and exercised its right to a trial by jury.

On September 14, 2006, months before the trial was scheduled to start, plaintiff again wrote to State Farm, urging the claims adjuster to review the arbitration materials with a view to settling the case, observing "it is quite clear that neutral people who reviewed the evidence are much closer to [plaintiff's] demands than State Farm's past offer[] [of $50,000]." Shortly before trial, plaintiff expressed a willingness to settle for $87,500. State Farm offered an additional $25,000, which would have brought plaintiff's recovery to $75,000. Plaintiff rejected that offer as insufficient.

The case went to trial before Judge Winard and a jury, commencing on January 22, 2007 and concluding two days later. In pretrial motions, plaintiff mentioned, for the first time, a "potential bad faith case," to which State Farm responded that bad faith had not been pled and, in any event, did not exist.

The jury returned a verdict of $2,500,000 in damages for plaintiff and $100,000 for his wife's per quod claim. Over plaintiff's objection, Judge Winard molded the verdict to conform with plaintiff's UM policy limit of $100,000 and entered judgment in plaintiff's favor against State Farm in that amount. The judge rejected plaintiff's assertion that State Farm's bad faith throughout the settlement negotiations entitled plaintiff to a judgment for the full amount of the jury's verdict without regard to the $100,000 cap ordinarily imposed by the insured's UM policy limits. Judge Winard declined to make any findings of fact as to plaintiff's bad faith claim in relation to the molding of the verdict because the issue had "not been squarely presented to the [c]court."

On March 16, 2007, plaintiff filed a notice of appeal challenging Judge Winard's refusal to enter judgment against State Farm in an amount equal to the jury verdict of $2,500,000 based upon State Farm's alleged bad faith. While plaintiff's appeal of Taddei I was pending, plaintiff filed a complaint on August 20, 2007 in Essex County against State Farm and its agents, defendants Kathleen Savastano and Jennifer Karsko, alleging bad faith by State Farm because at the time that State Farm sold the insurance policy to plaintiff[], they had an undisclosed policy which denied valid UM and UIM claims and summarily denied and rejected UM and UIM arbitration awards, irrespective of the validity and value of these claims, in an effort to cause their policyholders to devalue and discount legitimate UM/UIM claims to avoid such legal expenses and costs.

In his complaint, plaintiff alleged a violation of the New Jersey Consumer Fraud Act, common law fraud, negligence, negligent misrepresentation, breach of duty of good faith and fair dealing in violation of the New Jersey Unfair Claim Settlement Practices Act, and violations of the New Jersey Racketeer Influenced and Corrupt Organizations (RICO) Act.

State Farm moved to dismiss plaintiff's August 2007 bad faith complaint for failure to state a claim. The court denied the motion without prejudice, staying plaintiff's 2007 bad faith complaint (Taddei II) until we issued a decision in Taddei I.

We issued our opinion in Taddei I on June 30, 2008. Taddei v. State Farm Indem. Co., 401 N.J. Super. 449 (App. Div. 2008).

We affirmed the molding of plaintiff's judgment to reflect his policy limits but modified the judgment to include prejudgment interest. Id. at 467. We also declined to rule on the issue of whether or not State Farm's actions constituted bad faith, stating "bad faith was never pled. . . . The casual mention of a possible bad faith claim at the commencement of trial was not sufficient to place the matter at issue . . . . The issue was never before the trial court, and it is not properly before us." Id. at 465.

Although we did not rule on plaintiff's allegations of bad faith, we did discuss first-party bad faith claims, stating:

A fundamental difference between a third-party bad faith claim and first-party bad faith claim is that in the former the insurer is not a party to the underlying litigation against the insured, and only after an excess verdict does the claim ripen by exposing the personal assets of the insured, thus necessitating a new lawsuit regarding the bad faith allegations. But with a first-party claim, the insurer is in the litigation from the outset, and any claims of bad faith can be asserted in the same litigation. If not initially pled, but events occur during the pendency of the litigation which give rise to the plaintiff's belief that the carrier has acted in bad faith, a motion can be made to amend the pleadings, which would preserve the issue for plaintiff by either including it in the present litigation or reserving it for later litigation if the court so orders.

We reject plaintiff's argument that because the jury can not be told about insurance in the trial of the UM case, the claims cannot be brought in the same action.

To respect the rights of all parties, the underlying claim could be severed from the bad faith claim, with the latter being held in abeyance until conclusion of the former.

The severed bad faith claim would then be activated, triggering the possibility for the right to discovery, motions, and, if necessary, a separate trial. [Id. at 465-66 (internal citation omitted).]

Despite this discussion of the bad faith claim, we did not decide whether Taddei II should be dismissed under the entire controversy doctrine, observing "[t]hat decision must be made in that litigation. Our discussion is not intended to affect that determination." Id. at 466.

State Farm's motion to dismiss, which was based upon plaintiff's failure to assert during the pendency of Taddei I, the bad faith claim that he raised later in Taddei II, was heard before Judge Donald S. Goldman. On January 6, 2009, Judge Goldman issued a written opinion and an order dismissing plaintiffs complaint in Taddei II. Judge Goldman found that the claims brought by plaintiffs "in Taddei II could have and should been brought in Taddei I. Both claims involve the same contract of insurance, the same parties, and the same underlying facts and claims." For that reason, plaintiff's complaint in Taddei II, including any counts that could have otherwise survived a motion to dismiss, was dismissed under the entire controversy doctrine. Judge Goldman was not persuaded by plaintiff's argument that his bad faith claim did not arise until the jury verdict in Taddei I, and found that plaintiff was well aware "before the commencement of the trial in Taddei I that State Farm was not willing to pay either award suggested by the two arbitrations."

On appeal, plaintiff argues that Judge Goldman's dismissal of his complaint in Taddei II, on entire controversy grounds, was error because the entire controversy doctrine is an equitable doctrine; plaintiff's bad faith claim was unripe; the facts of Taddei I and Taddei II were not interrelated; applying the entire controversy doctrine in this case would subvert its objectives; and claims against defendants Karsko and Savastano should not have been dismissed under the entire controversy doctrine.

State Farm urges affirmance, arguing that Judge Goldman's application of the entire controversy doctrine was correct.

II.

The entire controversy doctrine is codified in Rule 4:30A, which provides:

Non-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims to the extent required by the entire controversy doctrine, except as otherwise provided by R. 4:64-5 (foreclosure actions) and R. 4:67-4(a) (leave required for counterclaims or cross-claims in summary actions).

[R. 4:30A.]

Entire controversy is "an equitable preclusionary doctrine" with the purposes of "encourag[ing] comprehensive and conclusive litigation determinations, . . . avoid[ing] fragmentation of litigation, and . . . promot[ing] party fairness and judicial economy and efficiency." Pressler, Current N.J. Court Rules, comment on R. 4:30A (2010). The doctrine "embodies the principle that the adjudication of a legal controversy should occur in one litigation in only one court; accordingly, all parties involved in a litigation should at the very least present in that proceeding all of their claims and defenses that are related to the underlying controversy." Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989).

In determining whether a prior claim and a successive claim constitute one controversy such that the successive claim should be barred by the entire controversy doctrine, "the central consideration is whether the claims against the different parties arise from related facts or the same transaction or series of transactions." DiTrolio v. Antiles, 142 N.J. 253, 267 (1995). This interrelation and commonality of facts, "rather than the commonality of issues, parties or remedies . . . defines the scope of the controversy and implicates the joinder requirements of the entire controversy doctrine." Id. at 272. The test for relatedness turns on whether parties or persons will, after final judgment is entered, be likely to have to engage in additional litigation to conclusively dispose of their respective bundles of rights and liabilities that derive from a single transaction or related series of transactions[.] [If so,] the omitted components of the dispute or controversy must be regarded as constituting an element of one mandatory unit of litigation. [Id. at 268 (citing O'Shea v. Amoco Oil Co., 886 F.2d 584, 590-91 (3d Cir. 1989)).]

Furthermore, the determination of whether claims are related and should be joined rests solely with the trial court, and not the parties:

It is the trial court's responsibility to determine whether or not joinder is appropriate in a given case, and thus litigants should be compelled to bring all actions at one time. . . . A plaintiff's failure to allow the trial court the opportunity to manage the full controversy at the outset diminishes the force of any later claim that joinder would have been inappropriate. [Id. at 275.]

Application of the entire controversy doctrine "depends on the exercise of judicial discretion in the facts of each case." Prevratil v. Mohr, 145 N.J. 180, 190 (1996). In considering whether the application of the entire controversy doctrine is "fair," courts should consider not only fairness to the courts and the defendant, but also fairness to the plaintiff whose claim should only be barred if he "'had a fair and reasonable opportunity to have fully litigated that claim in the original action.'" DiTrolio, supra, 142 N.J. at 273 (quoting Cafferata v. Peyser, 251 N.J. Super. 256, 261 (App. Div. 1991)).

Because the plaintiff must have had the opportunity to litigate the subsequent claim in the prior action before the entire controversy doctrine should be applied, the "doctrine does not apply to unknown or unaccrued claims." Id. at 273-74. The doctrine, however, does apply to claims that arise during the pendency of the original action. Brown v. Brown, 208 N.J. Super. 372, 382 (App. Div. 1986). In such cases, the plaintiff must apprise the court and adversary of this subsequent claim through a supplemental pleading so the court may determine if the claim should be joined; failure to do so will result in the subsequent claim being barred under the entire controversy doctrine. Id. at 380, 382.

III.

We turn first to plaintiff's argument that his bad faith claim against State Farm should not have been barred by the entire controversy doctrine because, as an "equitable doctrine," its application was unfair in the circumstances presented. He maintains that barring his Taddei II claims is unfair because: first-party bad faith claims were an issue of first impression at the time of Taddei I; the bad faith claim, for the most part, came to light during the trial of Taddei I; and he did not know until the jury verdict that State Farm had acted in bad faith. State Farm argues that the entire controversy doctrine should apply because plaintiff knew of the underlying facts of the bad faith claim when he filed his complaint in Taddei I.

While it is true that courts should be concerned with "fairness" when applying the entire controversy doctrine and should consider equitable factors, plaintiff's arguments are unconvincing. First, and perhaps most important, plaintiff himself referred to a potential bad faith claim against State Farm in pretrial motions during Taddei I. Furthermore, the alleged facts surrounding the complaint in Taddei II, that State Farm had a policy of denying valid UM claims and had wrongfully denied plaintiff's claims, were known to the plaintiff at the time of his filing a complaint in Taddei I. Although plaintiff might not have known the strength of his bad faith claim until the jury returned its verdict in Taddei I, he had knowledge of the underlying facts of a bad faith claim and even indicated at the beginning of the trial in Taddei I that he might file such a claim.

At the very latest, plaintiff became aware of State Farm's alleged bad faith on September 14, 2006, when he wrote to State Farm telling the insurer that two sets of arbitrators had valued his case at a much higher figure than had State Farm and its adjusters. We have been presented with no meritorious reason why plaintiff could not have filed an amended complaint at that juncture. Thus, we see nothing inherently unfair or inequitable in the judge's application of an equitable doctrine to the controversy before him.

IV.

Next, plaintiff argues that his bad faith claim should not have been barred by the entire controversy doctrine because such claim did not ripen until the jury returned its verdict in Taddei I in an amount that exceeded State Farm's final settlement offer by more than $2,400,000. State Farm argues that plaintiff's damages from State Farm's alleged bad faith accrued at the time of the filing of Taddei I, i.e., that plaintiff's bad faith damages accrued at the time he was forced to file suit in 2005 in Taddei I because State Farm had been unwilling to pay more than $50,000 on his claim. We view the return of a jury verdict in excess of State Farm's final offer not as an event that triggered the accrual of his cause of action, but rather as an event that merely lent additional strength to his bad faith claim. A cause of action for bad faith existed before the jury verdict, in light of the IME results and State Farm's alleged stonewalling even in the face of two sets of arbitrators' recommendations.

Plaintiff's reliance on Harley Davidson Motor Company v. Advance Die Casting, Inc., 150 N.J. 489 (1997), is misplaced. There the Court observed that "[s]ome forms of indemnity [claims] will truly not have accrued until the conclusion of the underlying litigation." Id. at 502. Plaintiff's reliance on this case is unconvincing as his claims are first-party bad faith claims and not claims where indemnification was sought by a tortfeasor from his insurer as in Harley Davidson. As such, this case is inapplicable, and Judge Goldman properly found that plaintiff's bad faith claim accrued either before or during Taddei I and should have been joined in that action.

V.

Plaintiff also argues that his bad faith claims should not have been barred under the entire controversy doctrine because the facts of Taddei I and Taddei II are not interrelated and that raising bad faith claims in Taddei I would have resulted in a bifurcated trial.

While a trial on plaintiff's UM claims would likely focus on liability and plaintiff's injuries, whereas a trial on plaintiff's bad faith claim would focus on State Farm's denial of plaintiff's UM claim, the facts underlying these actions are substantially intertwined. Both actions would include evidence concerning plaintiff's accident, liability for that accident, and plaintiff's injuries. Such issues would be important both to determining the amount of plaintiff's damages (UM claim) and whether State Farm had a good faith basis for denying plaintiff's claim (bad faith claim). For the entire controversy doctrine to be applied, the issues raised and the underlying facts do not have to be identical. They need only be "related." DiTrolio, supra, 142 N.J. at 268. "Related" refers to "commonality of facts, rather than commonality of issues." Id. at 272. Because the facts of both Taddei I and Taddei II are substantially related, we conclude that the trial court correctly analyzed this portion of the entire controversy doctrine.

Moreover, the potential of a bifurcated trial, had plaintiff asserted his bad faith claim in Taddei I, does not excuse his failure to do so. It is the judge, not the parties, who decides whether joinder is appropriate and, if so, how to manage the litigation. Id. at 275.

VI.

Plaintiff next contends that the application of the entire controversy doctrine to bar his bad faith claims will subvert the doctrine's salutary purposes of "encourag[ing] comprehensive and conclusive litigation determinations, . . . avoid[ing] fragmentation of litigation, and . . . promot[ing] party fairness and judicial economy and efficiency." Pressler, Current N.J. Court Rules, comment on R. 4:30A (2010). State Farm argues that application of the entire controversy doctrine was fair and proper.

As we have observed in Taddei I, in first-party claims, where the insurer is already involved in the litigation, "any claims of bad faith can be asserted in the same litigation." Taddei I, supra, 401 N.J. Super. at 465. Although a bifurcated trial, with a portion of the trial to concern the UM claim and a portion to concern the bad faith claim, is not the most efficient use of judicial resources, it is more efficient than what would have occurred here had plaintiff's complaint in Taddei II gone forward, namely two separate sets of pretrial discovery, two sets of pretrial motions, and two separate appeals, all concerning the same underlying facts. Thus, the goals of avoiding fragmented litigation and promoting judicial economy would be advanced by the application of the entire controversy doctrine.

The goals of the entire controversy doctrine also include "encourag[ing] comprehensive and conclusive litigation determinations." Pressler, supra, comment on R. 4:30A. Unquestionably, promoting the settlement of litigation plays a large role in accomplishing that goal. We have no doubt that the inclusion of a bad faith count in a first-party complaint against the insurer for UM benefits -- especially when the bad faith count is meritorious -- will enhance the likelihood of settlement. An insurer who has been put on notice of a bad faith claim has a considerable incentive to review its claims posture before the UM claim proceeds to trial against the tortfeasor, and thereby avoid the risk that the plaintiff's bad faith claim will be strengthened by a verdict well in excess of the insurer's last offer. So viewed, the inclusion of a bad faith count in a plaintiff's original UM complaint has the capacity to promote settlement and thereby "encourage comprehensive and conclusive litigation determinations." Ibid.

Because a first-party bad faith claim can be filed with a UM claim, and because the result of these claims being joined would be more efficient than the claims proceeding separately, the trial court was correct in holding that plaintiff's bad faith claim in Taddei II was barred by the entire controversy doctrine.

VII.

Last, plaintiff claims that Rule 4:30A and relevant case law do not require party joinder, and, as such, defendants Karsko and Savastano should not have been dismissed under the entire controversy doctrine. This claim lacks sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E). We add only the following comments.

Plaintiff's complaint states no separate cause of action against Karsko or Savastano. He alleges no actions that occurred outside of the scope of their employment and no personal benefits gained by Karsko or Savastano for their participation in State Farm's alleged scheme of denying UM claims. Plaintiff's claims against Karsko and Savastano arise solely out of their employment with State Farm. Although it is true that insurance agents have a fiduciary duty to insureds and must exercise good faith and reasonable skill in advising insureds, Pickett v. Lloyd's, 131 N.J. 457, 467 (1993), plaintiff's claims do not arise out of any individual actions by Karsko or Savastano but, rather, for their participation in State Farm's alleged policy of wrongly denying UM claims. Thus, the claims against Karsko and Savastano appear to be merely claims against State Farm. We thus affirm the application of the entire controversy doctrine as to defendants Karsko and Savastano.

Affirmed.*fn2


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