A New Jersey federal judge dismissed a bad-faith claim for underinsured-motorist benefits, finding that Plaintiff's complaint lacked necessary factual support and did not rise above the level of “bare averment.” The Court also dismissed Plaintiff’s claim for punitive damages, finding that Plaintiff failed to allege sufficient facts to show egregious circumstances or that the insurer's conduct was wantonly reckless or malicious. Johnson v. Liberty Mutual Ins. Co., Docket No. 10-cv-10494 (D. N.J. June 24, 2010).
Plaintiff was initially involved in a motor vehicle accident and suffered severe and permanent injuries. She subsequently settled with the tortfeasor’s liability insurer for the policy limit of $25,000. She then tendered a claim to her insurer, Liberty Mutual Insurance Company (“Liberty Mutual”) under the underinsured motorist coverage provided by the policy. This claim proceeded to arbitration, resulting in an award of $30,000, which the Plaintiff did not accept. The plaintiff then filed suit against Liberty Mutual, alleging breach of contract, failure to act in good faith, punitive damages and attorneys’ fees.
In granting Liberty Mutual’s motion to dismiss, the Court first noted that New Jersey law recognizes two circumstances in which an insurer may exhibit bad faith with regard to an insured’s first-party claim: denial of benefits without a fairly debatable reason for doing so, and unreasonable delay in the processing of a valid claim. The court found that Plaintiff's complaint did not sufficiently indicate either of these circumstances. Plaintiff merely stated that her underinsured motorist claim had proceeded to arbitration, which she acknowledged was her choice. In the absence of any factual support, Plaintiff’s claim of bad faith was no more than a “bare averment” that she “want[ed] relief and [wa]s entitled to it.” Under Twombley and Iqbal, such conclusory statements were not entitled to be accepted as true and were not enough to survive a motion to dismiss.
With respect to Plaintiff’s punitive damages claim, the Court noted that under New Jersey law punitive damages are not generally recoverable in the context of first-party insurance claims. Rather, recovery of punitive damages requires an insured party to meet a higher standard, namely, a showing of “egregious circumstances” where the insurer’s conduct was “wantonly reckless or malicious.” Applying these standards, the court held that Plaintiff 's complaint did no more than make vague allegations that Liberty Mutual “unreasonably prolonged the matter” and “failed to act in good faith.” These allegations fell short of the factual specificity required by Twombley and Iqbal. The Court thus dismissed Plaintiff’s claim for punitive and exemplary damages.