NJ Supreme Court to Decide Whether Judge or Jury Will Decide Rova Farms Bad Faith Claims Against Insurers
On May 3, 2011, the New Jersey Supreme Court heard oral argument in the case of Karen Wood v. New Jersey Manufacturers Ins. Co., Docket No. A-44-10, addressing whether the judge or jury is to be the factfinder in a bad faith claim against an insurer under Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474 (1974). No decision has been issued to date and legal practitioners and insurers in New Jersey are watching closely.
In New Jersey, the “Rova Farms” letter from the defendant to his carrier is employed where the judgment may exceed the coverage. If the plaintiff makes a demand to settle his case within the insured’s policy limits, and the insurer declines to do so, then the insured may send a “ Rova Farms” letter. This letter advises that if the insurer fails to settle, and the verdict exceeds the policy limits, then the insured will demand that the insurer pay the entire verdict. After a verdict in excess of the policy limits, the insured may argue that the insurer acted in bad faith when it rejected the settlement demand. In order to avoid personal exposure, the insured may assign his rights for the bad faith claim to the underlying plaintiff.
In the case now under consideration, Plaintiff Wood was a U.S. Postal Service employee who was injured when she was attacked by a dog on her mail route. The dog was kept by defendant Caruso, who was insured by New Jersey Manufacturers Insurance Company (“NJM”), with a policy limit of $500,000. During the underlying litigation, the nature and extent of Wood’s injuries, as well as their correlation to the dog attack, were vigorously contested. At a non-binding arbitration, the court-appointed arbitrator valued the case at $600,000. The defense requested a jury trial de novo. Prior to the trial, defense counsel requested that NJM provide $500,000 in settlement authority. NJM believed that the case could be successfully defended and the liability kept below the policy limits. NJM authorized an offer of $300,000, which Wood’s attorney rejected. Wood’s attorney then sent a “Rova Farms” letter, stating that Wood was willing to settle the case at or below NJM’s $500,000 limit, and if Wood obtained a verdict exceeding the limit, Wood would look to NJM to pay any excess amount. Personal counsel for Caruso also sent a “Rova Farms” letter to NJM, requesting that NJM negotiate in good faith and use its best efforts to settle the claim within the policy limits. During the trial, and before jury deliberations, Wood’s demand dropped to $450,000. NJM did not offer any additional money. The jury found Caruso 51% negligent, and a final judgment was entered against Caruso for $1,408,320.33. NJM paid the full amount of the $500,000 policy to Wood in partial satisfaction of the judgment.
Caruso assigned her rights to Wood for the bad faith claims against NJM, and Wood filed suit against NJM. During the course of the bad faith action, Wood filed a Motion for Summary Judgment. The trial judge granted Wood’s motion, and NJM appealed to the Superior Court. The Superior Court vacated the decision granting summary judgment, and remanded the case to the trial court. The Superior Court declined to decide whether the factfinder in the remand proceeding would be a jury or the court.
The appeal to the Supreme Court then followed, and the Supreme Court granted the petition for certification on the limited issue of whether an insured’s claims of bad faith against its insurer under Rova Farms are to be decided by a judge or jury.
Note that in contrast to New Jersey, Pennsylvania has enacted a statute regarding bad faith, 42 Pa.C.S. §8371. In Pennsylvania, the jury decides the §8371 claim if it is brought in federal court, but the judge makes the determination in state court.
Any questions regarding this client advisory can be directed to Lauren Clein at (215) 564-2928 begin_of_the_skype_highlighting (215) 564-2928 end_of_the_skype_highlighting or lclein@tthlaw.com.