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New Jersey Schools Insurance Group v. Meadowbrook Insurance Group

United States District Court, D. New Jersey, Camden Vicinage

May 11, 2017

NEW JERSEY SCHOOLS INSURANCE GROUP, Plaintiff,
v.
MEADOWBROOK INSURANCE GROUP, et al., Defendants.

          Gregory J. Giordano, Esq. Lenox, Socey, Wilgus, Formidoni, Brown, Giordano & Casey, LLC Attorney for Plaintiff New Jersey Schools Insurance Group.

          Michael P. Luongo, Esq. Goldberg Segalla LLP Attorney for Defendants Brokers Risk Insurance Company, Lloyds of London, Certain Underwriter at Lloyds, London.

          OPINION

          RENÉE MARIE BUMB UNITED STATES DISTRICT JUDGE.

         This matter is before the Court upon a motion by Defendant Certain Underwriters at Lloyds, London (“Underwriters”) to dismiss Counts II and V of the Second Amended Complaint filed by Plaintiff New Jersey Schools Insurance Group (“NJSIG”). For the reasons set forth herein, the motion will be granted.

         The following facts are taken from the Second Amended Complaint. (Compl. [ECF No. 26]). On June 1, 2011, Luis Rodriguez was struck by a school bus owned and operated by Jersey City Public Schools (“Jersey City”), resulting in personal injuries to Mr. Rodriguez. Mr. Rodriguez filed a personal injury action against Jersey City in the New Jersey Superior Court, Law Division, Union County (the “Rodriguez Action”).

         Jersey City was insured by Plaintiff NJSIG for the claims in the Rodriguez Action under a policy with a coverage limit of $500, 000. Munich Insurance Company provided indemnity coverage for an additional $500, 000. Defendant Star Insurance Company insured Jersey City under an Excess Liability policy with coverage in excess of the $1 million provided by NJSIG and Munich Insurance Company. Underwriters insured NJSIG under a Trustees Errors and Omissions Liability Insurance for Self Insured Funds policy bearing number LTEO-0006976 (the “Policy”).

         The Rodriguez Action settled at mediation on July 21, 2004. The settlement resulted in a General Release in which all claims by Mr. Rodriguez against Jersey City, NJSIG, and others were released in exchange for the settlement payment of $1.9 million. On September 29, 2014, over two months after the settlement, NJSIG notified Star and Meadowbrook of the settlement and requested payment of $900, 000 under the Star policy.[1] On October 24, 2014, Meadowbrook denied coverage under the Star policy on the basis that it did not receive notice that the claim against Jersey City would exceed the $1 million attachment point of the Star policy and that it had not provided consent to the settlement within its policy limits. Prior to receiving Meadowbrook's denial, however, (and “[w]ithout waiving the position that Star was notified that the claim exceeded $1 million), (Compl. ¶ 28), NJSIG notified Underwriters on October 7, 2014, through its representative, Brokers' Risk Placement Service, Inc. (“Brokers' Risk”), of a claim under the Policy. NJSIG alleges that its notice to Underwriters made clear that NJSIG had committed an error by failing to notify Star of the settlement and that the settlement payment needed to be issued. Moreover, NJSIG alleges that it was under threat of litigation by Rodriguez to enforce the settlement if payment of the settlement amount was not forthcoming.

         On November 7, 2014, Brokers' Risk, on Underwriters' behalf, denied coverage to NJSIG under the Policy. In pertinent part, Underwriters denied coverage because no claim had been made against NJSIG as required under the Policy. Plaintiff alleges the denial was “based on a narrowly circumscribed and distorted interpretation of ‘claim' that purportedly required litigation against NJSIG in order to trigger coverage under the . . . Policy.” (Compl. ¶ 33). NJSIG also alleges that the denial was made without conducting any investigation and that Brokers' Risk/Underwriters had no debatable reason to deny coverage under the Policy.

         Underwriters contends that Counts II and V fail to state a claim because Underwriters had a legally permissible basis to deny coverage to NJSIG or, at a minimum, Underwriters' denial of coverage was debatable. See, e.g., Badiali v. New Jersey Mfrs. Ins. Grp., 220 N.J. 544, 554 (2015) (“[T]o establish a first-party bad faith claim for denial of benefits in New Jersey, a plaintiff must show that no debatable reasons existed for denial of the benefits.” (internal citations omitted)). The Court agrees.

         MOTION TO DISMISS

         A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied if the plaintiff's factual allegations are “enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true, (even if doubtful in fact).” Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)(internal citations omitted). Moreover, “[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1965 (internal citations omitted).

         A district court must accept any and all reasonable inferences derived from those facts. Unger v. Nat'l Residents Matching Program, 928 F.2d 1392 (3d Cir. 1991); Glenside West Corp. v. Exxon Co., U.S.A., 761 F.Supp. 1100, 1107 (D.N.J. 1991); Gutman v. Howard Sav. Bank, 748 F.Supp. 254, 260 (D.N.J. 1990). Further, the court must view all allegations in the complaint in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994).

         Therefore, in deciding a motion to dismiss, a court should look to the face of the complaint and decide whether, taking all of the allegations of fact as true and construing them in a light most favorable to the non-movant, the plaintiff has alleged “enough facts to state a claim for relief that is plausible on its face.” Twombly, 127 S.Ct. at 1974. Only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint are taken into consideration. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990).

         Count II alleges a breach of the implied covenant of good faith and fair dealing. Specifically, NJSIG alleges that Underwriters “breached the duty of good faith and fair dealing in its determination as to the liabilities due to NJSIG under [the Policy].” Count V alleges bad faith. Specifically, Plaintiff alleges that Underwriters “lacked any reasonable basis for denying ...


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