In Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474 (1974), the New Jersey Supreme Court recognized a cause of action against an insurer when it refuses, in bad faith, to settle a claim within the policy limits and thereby exposes the insured to an excess verdict. Under those circumstances, the insurer can be held liable for the entire judgment, including the excess amount above the policy limits. Since the creation of a “Rova Farms” cause of action in 1974, the Supreme Court had never ruled on whether such a bad faith claim was to be decided by a judge or jury. In Wood v. New Jersey Manufacturers Insurance Co., ___ N.J. ___ (2011), the Court held that “a Rova Farms claim that an insurer in bad faith failed to settle a claim within the policy limits, thereby in fact exposing its insured to liability for any excess, represents a traditional contract claim that the insurer breached the implied covenant of good faith and fair dealing and to which the right to trial by jury attaches.”
In 2001, the plaintiff was delivering mail at a condominium complex when she was attacked by a dog. The dog was owned by John Critelli and kept by Alfonzia Caruso, his grandmother, at her condominium. The plaintiff was seriously injured, as she needed two separate spine surgeries. The plaintiff sued Critelli, Caruso, and the condominium association. Caruso had a $500,000 liability policy with defendant New Jersey Manufacturers Insurance Co. (“NJM”). NJM provided Caruso and Critelli a defense through a single counsel in the lawsuit filed by the plaintiff.
The action was submitted to non-binding arbitration and the arbitrator found that the plaintiff suffered $600,000 in damages. The arbitrator allocated 90% liability to Caruso and 10% to the condominium association. NJM rejected the award and demanded a trial. Before the trial began, NJM conducted an internal evaluation of the case. The attorney representing Caruso and Critelli recommended that the case be settled for the full amount of the $500,000 policy limit. NJM’s claim adjuster agreed with the attorney’s recommendation. However, NJM’s Major Claims Committee determined that the plaintiff’s claim would not exceed $500,000 and it authorized a $300,000 settlement. The plaintiff rejected that offer. Nonetheless, plaintiff’s counsel repeatedly advised the defense attorney that the plaintiff would accept a settlement at or near the policy limit. When those efforts failed, the plaintiff put NJM on notice of a potential Rova Farms claim.
NJM remained firm in its $300,000 settlement offer and rejected plaintiff’s $450,000 demand that she made before the jury began its deliberations. The jury returned a verdict that found Caruso 51% at fault and the condominium association 49% at fault. The jury awarded the plaintiff an aggregate amount of $2,422,000. After molding the verdict and adding prejudgment interest, judgment was entered in the plaintiff’s favor against Caruso in the amount of $1,408,320.33 – well in excess of the $500,000 policy limit. The trial court denied NJM’s post-trial motions. Rather than pursuing an appeal, NJM paid the plaintiff the full amount of the $500,000 policy limit, but that obviously did not satisfy the judgment that was entered against Caruso.
In view of that deficiency, plaintiff negotiated with Caruso and had Caruso assign her Rova Farms claim to the plaintiff, and the plaintiff agreed to not proceed personally against Caruso for the excess amount. The plaintiff then filed a declaratory judgment action against NJM in which she asserted that it, in bad faith, failed to settle the underlying claim within the policy limits. The plaintiff sought to hold NJM responsible for the full amount of the judgment entered against Caruso. The declaratory judgment case was assigned to the same judge who presided over the personal injury action. Before discovery had concluded, the trial court granted the plaintiff’s motion for summary judgment and entered judgment in her favor in the amount of $965,838.53, which represented the excess amount.
The Appellate Division reversed the entry of summary judgment and remanded. The Appellate Division concluded that there were factual questions that needed to be resolved and that the entry of summary judgment was therefore inappropriate. However, the Appellate Division did not resolve the question of whether the judge or the jury should decide the Rova Farms claims; instead, the Appellate Division left that question for the trial court to resolve.
The Supreme Court granted certification, “‘limited to the issue of whether an insured’s claims of bad faith against its insured [under Rova Farms] are to be decided by a judge or jury.’” The plaintiff argued that a Rova Farms claim did not require a jury trial because it was essentially an equitable claim. In contrast, NJM asserted that because a Rova Farms claim arose from the relationship between the insurer and the insured it was essentially a breach of contract action that a jury must decide.
To resolve that question, the Court first reviewed well-established precedent regarding the right to a jury trial and outlined the distinction between a “legal” action, which was subject to a jury trial, and an “equitable” action, which was not. The Court then examined the nature of the plaintiff’s claims against NJM and the relief that she requested. The Court concluded that “it is undisputed that [plaintiff’s] Rova Farms bad faith claim is a garden-variety action at law that requires that she prove that defendant breached its insurance contract by its failure in bad faith to settle plaintiff’s original personal injury suit against defendant’s insureds. Despite language in the case law referring to the relationship between the insurer and its insured as something akin to a “fiduciary relationship,” it remains unmistakable that, at its core, a Rova Farms bad faith claim is a simple breach of contract claim, one that perforce must assert that, by failing in bad faith to compromise a claim within the policy limits prior to a verdict, the insurer has breached the implied contractual covenant of good faith and fair dealing and, therefore, should be liable for the entire judgment and not just to the extent of the policy limits.”
The Court emphasized that no matter how the Rova Farms claim was described or labeled, it was a breach of contract claim and that such claims are triable to a jury. Buttressing that point, the Court stressed that the plaintiff sought monetary relief (i.e., legal relief) but not equitable relief. Although the Rova Farms claim was subject to a jury trial, the Court also explained that all such claims did not have to be tried by juries. Rather, like all other civil cases, the right to a jury trial can be waived or the parties can consent to a bench trial.