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Wood v. New Jersey Manufacturers Insurance Co.

July 28, 2010


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-0926-08.

Per curiam.


Argued March 3, 2010

Before Judges Stern, Graves, and Sabatino.

Defendant, New Jersey Manufacturers Insurance Company ("NJM"), appeals the Law Division's summary judgment order conclusively determining that NJM had breached its duties by declining to settle a tort action against its insureds within the coverage limits of NJM's liability insurance policy. Because we are persuaded that, under the principles of Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974) and related case law, there are genuine and triable issues of material fact as to whether NJM acted in bad faith by rejecting the opportunity to settle the underlying case within the policy limits, we vacate the summary judgment order. We consequently remand the bad faith issues for a trial or plenary hearing.


The present appeal grows out of a prior lawsuit for personal injuries brought by Karen Wood and her husband Frederick Wood*fn1 against NJM's insureds, Alfonzia Caruso and John Crittelli, and also against the Alfred Vail Mutual Association ("AVMA" or "the association"). At the time of the March 1, 2001 incident that allegedly caused her injuries, Wood was a letter carrier employed by the United States Postal Service.

Wood was injured after being attacked by a dog named "Max" while delivering mail on the grounds of AVMA's complex in Shrewsbury. The dog was owned by Crittelli and was kept on the premises by Caruso, Crittelli's grandmother. The March 1, 2001 incident was the sixth occasion in which Max had charged at Wood while she was attempting to deliver mail.

According to Wood's account of the March 1, 2001 incident, she saw Max, who was not on a leash, run toward her across a common area. As Wood backed up against a fence and tried to locate a gate to escape, the dog jumped at her, pushing Wood off of her feet. Wood held onto the fence and was "dangling there" while the dog struck her. Wood broke free and proceeded to fend off the dog on at least two more attempted strikes before she was able to escape to her truck. Wood then called the State Police to the scene. After the police responded, Wood returned to and finished her mail route.

On the day after the dog attack, Wood saw a physician and complained of lower back pain. Thereafter, she also complained of pain in her neck. After consultation with various physicians, Wood underwent cervical spinal surgery in March 2003 and, subsequently, lumbar spinal surgery in June 2004.

As a consequence of the March 1, 2001 incident, Wood pursued a workers' compensation claim against the Postal Service. She and her husband also brought a personal injury action in the Law Division against Crittelli, Caruso and AVMA.

The workers' compensation claim resulted in the payment of substantial medical benefits and disability income to Wood. As of the time that her personal injury action went to trial in the fall of 2007, the compensation lien had accrued to $280,281.17, consisting of $79,612.31 in medical reimbursements and $200,668.86 in disability income payments. It was recognized at the time of trial that the lien amount could increase beyond these accrued levels as the result of Wood's continued medical treatment.

At the time of the subject incident, NJM had a liability insurance policy in force, which it had issued to Caruso, the unit owner. It is undisputed that the NJM policy had a coverage limit of $500,000. Crittelli was also apparently covered under that policy as an additional insured, at least with respect to harms caused by his dog, which he had kept at Caruso's residence with her permission. NJM consequently provided both Caruso and Crittelli with a defense in Wood's personal injury action. The same defense attorney assigned by NJM jointly represented both Caruso and Crittelli in the litigation.

Prior to and during the personal injury trial, NJM and counsel for Wood sharply disputed the nature and extent of Wood's alleged injuries, and whether, and to what degree, those injuries had been caused by the March 1, 2001 dog attack.

Wood's principal medical expert who testified on her behalf at trial, Steven Berkowitz, M.D., an orthopedic surgeon, opined that, as a result of the March 1, 2001 incident, Wood had sustained herniations at disc levels C5-6, C6-7, L1-2, and L4-5. Dr. Berkowitz also found that Wood had sustained a right-sided "sacroiliac sprain/strain dysfunction."

Another orthopedic surgeon who examined Wood at the request of her employer in connection with her workers' compensation claim, Robert Dennis, M.D., initially opined that Wood's cervical injury was causally related to the March 2001 dog attack. However, Dr. Dennis subsequently revised his opinion, and at his de bene esse deposition in April 2007, concluded that the cervical injury was not related to the March 2001 incident.

The defense's medical expert at trial, Michael Gordon, M.D., an orthopedic surgeon who had examined Wood in April 2004 and again in February 2005, agreed that Wood had a herniated cervical disc. However, Dr. Gordon concluded that the cervical herniation was not related to the March 1, 2001 dog attack. With respect to Wood's lumbar region, Dr. Gordon initially characterized her condition as a lumbar "strain." On further reflection, Dr. Gordon ultimately was persuaded that Wood, in light of her persisting symptoms, had sustained a lumbar "disc protrusion," and that the condition was caused by the March 2001 dog attack.

Wood further presented expert proof from an economist, Robert P. Wolf. Wolf estimated Wood's past and prospective economic loss at $561,590, taking into account her pre-injury and post-injury earnings and her earnings capacity.*fn2 The defense did not retain a competing economic expert.

At a non-binding arbitration session held at the Monmouth County Courthouse on August 25, 2005, the court-appointed arbitrator evaluated Wood's gross economic and non-economic damages at $600,000. The arbitrator allocated ninety percent of the fault to Caruso, and ten percent to AVMA. This allocation yielded a net recommended award against Caruso of $540,000, a sum exceeding NJM's $500,000 policy limit. The defense rejected the arbitrator's determination and made a timely request for a jury trial de novo.

Prior to the jury trial, Wood's case was evaluated by the defense attorney assigned by NJM to represent its insureds, by NJM's claims adjuster, and ultimately by NJM's internal "Major Claims Committee." The claims adjuster advised the Committee that "[t]he value of [Wood's] case would be in the neighborhood of [NJM's] policy, especially if the jury were to believe that [Wood's] neck injury and resultant surgery were from the incident of March 1, 2001." The assigned defense attorney similarly recommended that NJM release settlement authority to him in the full amount of the $500,000 policy. The record also contains a November 7, 2005 letter to NJM from defense counsel for the insured, reporting that Wood, according to her attorney, was at that time planning to undergo additional back surgery. As defense counsel saw it, the prospective surgery "will certainly place the non-compromisable workers' compensation lien well into the $400,000.00 [range] and the value of the case will exceed your insured's policy."

NJM's Major Claims Committee (the "Committee") was more optimistic, however, about the prospects of successfully defending Wood's case and of containing the net liability of its insureds to a sum under the $500,000 policy limits. Specifically, the Committee decided that NJM would only authorize $300,000 in settlement of Wood's claims.

In making its evaluation, the Committee apparently found several factors were significant. Among other things, the Committee perceived that Wood had been untruthful in her interrogatory answers and at her deposition, in contending that she had experienced no neck injuries prior to the March 2001 dog attack. In fact, there was contrary medical documentation showing that Wood had been previously treated for neck injuries and that the pre-existing neck condition was chronic. The Committee also regarded as significant the fact that Dr. Dennis, Wood's expert from the compensation case, had reversed his opinion about the causal linkage between the March 2001 incident and Wood's cervical condition.

The Committee also had a more optimistic view of its insureds' liability exposure. The Committee noted that despite repeated complaints to AVMA about the dog, the association apparently took no action to address the situation. The Committee therefore predicted that AVMA would be allocated "a significant portion of liability" by the jury, thereby reducing the comparative exposure of NJM's insureds.

After the Committee authorized an amount up to $300,000 to settle the case in January 2006, defense counsel tendered an offer of that entire amount to Wood's attorney. Through her counsel, Wood rejected the $300,000 offer.

Thereafter, Wood's attorney communicated several times to the insured's defense counsel that Wood was willing to settle the case at or below NJM's $500,000 policy limit. As part of such settlement communications, Wood's attorney faxed on October 9, 2006 what is customarily known as a "Rova Farms" letter, characterizing the $300,000 defense offer as one made in bad faith. The letter further warned that, if Wood obtained a judgment exceeding the $500,000 policy limits, she would look to NJM to be responsible for that excess amount. Wood's attorney followed up with another Rova Farms letter dated October 25, 2007, noting that the workers' compensation lien had risen by that point to $280,000. Wood's counsel reiterated that his client would look to recover from NJM in the event of an excess verdict.

In that same vein, personal counsel to Caruso sent NJM's adjuster a certified letter on March 15, 2006, invoking the insured's rights under Rova Farms. That letter from personal counsel demanded that the carrier negotiate in good faith with Wood's counsel and that NJM "use [its] best efforts to settle [Wood's] claim within [the $500,000] policy limits."

Despite these various entreaties, NJM held fast to its view that a settlement offer above $300,000 was unjustified. It did not approve any increase in that authorized amount. Meanwhile, before the jury began deliberations, Wood's attorney orally advised defense counsel that his client's settlement demand had dropped to $450,000, an amount $50,000 less than NJM's policy limits. That eleventh-hour reduction in Wood's demand still did not precipitate any enhanced counter-offer by NJM.

During the course of the trial, the trial judge made several rulings adverse to the position of NJM's insureds. In particular, the trial judge precluded the defense from presenting Dr. Dennis's de bene esse deposition testimony, pursuant to Genovese v. N.J. Transit Rail Operations, 234 N.J. Super. 375, 381 (App. Div.), certif. denied, 118 N.J. 195 (1989), which prohibits the substantive use of an expert's deposition by an adversary over an objection by the expert's proponent. Wood's counsel, who had taken the deposition in anticipation of using it at trial, objected to its substantive use by NJM. The trial judge did, however, allow defense counsel to call Dr. Dennis as a live witness, as permitted by Fitzgerald v. Stanley Roberts, Inc., 186 N.J. 286, 301-03 (2006). However, for reasons that are not entirely clear, the defense did not pursue that avenue. NJM believes that, had Dr. Dennis's deposition testimony been provided to the jury, it would have substantially weakened Wood's damages claims and would have corroborated the defense theory that Wood had been untruthful about her prior injuries, or at least that she had downplayed them.

Trial counsel for NJM's insureds did not cross-examine Wood directly about the discrepancies between her pre-March 2001 medical records and her repeated assertions that she had no prior injuries. Those inconsistencies were hinted at during Wood's cross-examination by trial counsel for the co-defendant, AVMA, although the specific inconsistencies were not detailed through that cross-examination.

After considering the trial proofs, the jury found both Caruso and AVMA negligent in failing to take measures that could have prevented the March 1, 2001 dog attack. Applying comparative fault principles, the jury allocated fifty-one percent fault to Caruso and forty-nine percent fault to AVMA. The jury awarded Wood compensatory damages in an aggregate amount of $2,422,000, representing $1,400,000 for Wood's pain and suffering, $782,000 for her economic losses, and $240,000 for her husband's per quod claims.

The trial judge subsequently molded the verdict to factor in the respective comparative fault percentages, and also to add in appropriate prejudgment interest. As the result of those calculations, final judgment was entered against Caruso, inclusive of interest, for $1,408,320.33, and a final judgment against AVMA for $1,353,092.07.

Following the jury's verdict, NJM's insureds moved for a new trial or, in the alternative, remittitur of the damages award. The trial judge denied that application in a bench ruling, after hearing the oral arguments of counsel. The judge found that the trial proofs, and, in particular, Wood's testimony, justified the jury's award for her pain and suffering and, moreover, that the economic damages were not excessive in light of the evidence.

AVMA appealed the judgment against it. We affirmed that judgment as to AVMA in an unpublished opinion last year. See Wood v. Crittelli, No. A-2788-07T2 (App. Div. Aug. 17, 2009). NJM's insureds did not appeal.*fn3

Following the outcome of the personal injury case, NJM paid the full amount its $500,000 policy to Wood and her husband, in partial satisfaction of the judgment against NJM's insureds. Thereafter, the Woods and the insureds negotiated an assignment of the insureds' potential bad faith ...

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