Insurance companies and injured parties should take note: Although every insurer has the duty to settle claims, whether an insurer has acted in bad faith and breached its duty in connection with settlement depends on the circumstances of a particular case. Am. Home Assurance Co., v. Hermann’s Warehouse Corp., 117 N.J. 1, 7 (1989); Lieberman v. Empl’rs Ins. Of Wausau, 84 N.J. 325, 336 (1980).
All contracts impose an implied obligation of good faith and fair dealing in their performance and enforcement. Sears Mortg. Corp. v. Rose, 134 N.J. 326, 347 (1993). “Good faith” is traditionally defined as “honesty in fact in the conduct or transaction concerned.” N.J.S.A. 12A:1-201(19). In the insurance industry, particularly in the area of insurance claims settlement, “good faith” is the subject of statute which are concerned with such practices as “refusing to pay claims without conducting a reasonable investigation based upon all available information,” N.J.S.A. 17:29B-4(9), “failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed” 17:29B-4(9)(e); “compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds” 17:29B-4(9)(g); and “not attempting to negotiate in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear” 17:29B-4(9)(f).
“The good faith obligations of an insurer to its insured run deeper than those in a typical commercial contract.” Badiali v. New Jersey Manufacturers Insurance, A-48 September Term, 2012, 071931. As such, an insurer’s breach of good faith may be found upon a showing that it has breached its fiduciary obligations, regardless of any malice or will. Bowers v. Camden Fire Ins. Ass’n, 51 N.J. 62, 79 (1968).
A finding of bad faith against an insurer in denying an insurance claim, however, cannot be established through simple negligence. Pickett v. Lloyd’s, 131 N.J. 457, 481 (1993). Mere failure to settle a debatable claim does not constitute bad faith. Id. at 473. To establish a bad faith claim for denial of benefits, a plaintiff must show “that no debatable reasons existed for denial of the benefits.” Id. at 481. An insurer has the right to reject an arbitration award pursuant to the express terms and conditions of its policy. Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 175 (1995). It also has the right to reject an award on the basis of a published or unpublished court decision supporting its position. Badiali v. New Jersey Manufacturers Insurance, A-48 September Term, 2012, 071931.
In other words, if an insurer has a reasonable basis to support its decision to reject an arbitration award, bad faith does not exist.