In Augustine W. Badiali v. New Jersey Manufacturers Insurance Group, No. 071931, 2015 WL 668206, (N.J. Feb. 18, 2015), the New Jersey Supreme Court affirmed the Appellate Division’s ruling that the insurer did not act in bad faith and held that an insurer’s reliance on an unpublished decision when making its coverage determination precluded a finding of bad faith.
Plaintiff, having been injured by an uninsured motorist (UM), filed a UM claim, which went to arbitration and resulted in an award for plaintiff. See id. at *1. After the insurer rejected the arbitration award and demanded a trial de novo on the UM claim pursuant to applicable policy language, the policyholder sued the insurer for breach of contract, bad faith and consumer fraud. See id. at *1-2.
The New Jersey Supreme Court affirmed the Appellate Division’s holding that the insurer’s position was “fairly debatable”, and thus it had not acted in bad faith. In announcing its decision, the New Jersey Supreme Court reaffirmed New Jersey’s “fairly debatable” rule that holds to prevail on a bad faith claim against an insurer, “a plaintiff must show ‘that no debatable reasons existed for denial of the benefits’.” Id. at *5 (citing Pickett v. Lloyd's, 131 N.J. 457, 473, 621 A.2d 445 (1993)).
Ruling on an issue of first impression, the court also held that an insurer’s reliance on an unpublished decision supporting its coverage position “precludes a finding of bad faith.” Badiali, 2015 WL 668206, at *8-9. In this regard, the court explained that “[i]n our view, it is illogical to suggest that [the insurer] NJM, or any corporation, cannot rely on previous unpublished opinions—especially those in which they were specifically involved—in forming their business decisions.” Id.at *8 (noting that the existence of an unpublished opinion provided the insurer with “adequate reason to believe that its conduct was consistent with judicially accepted contract interpretation, corporate policies and practices”). Thus, the court held that the insurer’s position in reliance on an unpublished decision “was at least fairly debatable” in addition to being “based on a reasonable and principled reading of its policy language.” Id. at *10.
This decision is notable for at least two reasons. First, the New Jersey Supreme Court reiterated New Jersey’s “fairly debatable” bad faith standard. Id. at *5 (to prevail on bad faith claim, insured must show “that no debatable reasons existed for denial of the benefits”) (citing Pickett, 131 N.J. at 481). Second, the court held that an insurer may rely on an unpublished decision when forming its coverage position and will “avoid a finding of bad faith for actions taken in accordance with [such a] holding.” Badiali, 2015 WL 668206, at *8-9 (noting that insurers can rely on unpublished opinions, not for precedential value, but for aiding insurers in making decisions on claims).