The New Jersey Supreme Court holds that the right to trial by jury attaches to a Rova Farms bad faith claim.

WOOD v. NEW JERSEY MANUFACTURERS INSURANCE

The NJ Supreme Court recognized in Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474 (1974) a “bad faith” cause of action against an insurer.  In that decision, the Court noted where:  “there is a settlement demand within the policy limits, the insurer in bad faith refuses to settle the claim, and a verdict above the policy limits is returned…the carrier’s bad faith failure to settle the claim within the policy limits may render the carrier liable for the entire judgment, including the excess above the policy limits.”

Personal Injury Claim—- Wood v. Caruso

On March 1, 2001, the plaintiff, Karen Wood was delivering mail at a condominium complex when she was attacked by a dog owned by John Critelli and kept by Alfonzia Caruso, Critelli’s grandmother.  The plaintiff sustained injuries requiring two separate spinal surgeries.  Karen Wood filed suit against Critelli, Caruso and the condo association where Caruso’s unit was located.  Caruso, maintained a $500,000 liability policy with defendant New Jersey Manufacturers Insurance Company (NJM).  NJM provided a defense to Caruso and her grandson.

The parties submitted the matter to nonbinding arbitration.  The arbitrator found gross damages of $600,000 and apportioned liability as 90% ($540,000) to Caruso and 10% ($60,000) to the condo association. The defendants filed a trial de novo.  Prior to the jury trial, NJM conducted an internal evaluation of the plaintiff’s claims.  Counsel representing Caruso recommended that NJM authorize him to settle the case for the full $500,000 policy limit.  NJM’s claims adjuster advised that the value of the plaintiff’s claim would be near the policy limits.  NJM’s Major Claims Committee concluded the claim would not exceed the value of the policy and authorized a $300,000 settlement offer.  Before the jury began its deliberations, the plaintiff’s advised that they would settle for $450,000. This demand was rejected.  The jury returned a verdict allocating fault as: 51% to Caruso, 49% to the condo association.  The jury awarded gross damages of $2,422,000.  The court molded the verdict to enter judgment against Caruso in the amount of $1,408,320.03.  Caruso filed a motion for new trial which was denied.  NJM then tendered the full policy to the plaintiff.

Declaratory Judgment Action—–Wood v. New Jersey Manufacturers Insurance

The plaintiff entered into an assignment with Caruso for his Rova Farms claim against NJM.  Plaintiff then commenced a declaratory judgment action against NJM alleging that NJM failed to settle plaintiff’s claim within the policy limit thereby wrongfully exposing its insured to an excess verdict. Plaintiff demanded a jury trial.  However, NJM did not demand a jury trial. Before discovery was completed, the plaintiff filed for summary judgment against NJM.  The court granted the plaintiff’s motion.  The court found that NJM’s actions were cavalier and that “in the final analysis, [NJM] gambled on a trial contrary to the interest of its insured.”  NJM appealed.  The Appellate Division reversed the entry of summary judgment and remanded.  The Appellate Division noted that there were fact sensitive determinations that needed to be made about NJM’s reasonableness in handling settlement negotiations.  The court noted, “prudence dictates that these pivotal questions of reasonableness and bad faith be decided in this case after a full blown evidentiary presentation before the factfinder.”  The Appellate panel let the trial court determine whether the proceeding should be before a jury or the court.

The plaintiff sought certification as to the limited issue of whether the insured’s claims of bad faith against its insurer under Rova Farms are to be decided by a judge or jury.  The plaintiff asserted that the right to a trial by jury does not attach to a Rova Farms claim (despite having demanded a jury trial).  The plaintiff argued that the claim against NJM concerned the fiduciary obligation imposed by an insurer to negotiate a settlement within the policy limits.  Accordingly, the fiduciary duty is primarily equitable in nature and that there is no right to a trial by jury on equitable claims.  The plaintiff also cautioned that submitting a Rova Farms bad faith claim for determination by a jury would “essentially require a second full trial.”

NJM asserted that the relationship between an insurer and its insured is one based in contract and an insured’s bad faith claim under an insurance policy is nothing more than a species of contract claim arising under the implied covenant of good faith and fair dealing.  NJM argued that disputes between insurers and insureds concerning their respective rights and obligations under the insurance policy are commonlaw, breach of contract actions for which legal remedies provide the primary form of relief into which the right of a jury trial attaches.

The NJ Supreme Court noted that declaratory judgment actions were unknown in common law and that in NJ, the Uniform Declaratory Judgments Act, N.J.S.A. 2A:16-50 to -62 governs the right to declaratory relief.  The court stated that the Act provides that factual issues “may be tried and determined in the same manner as issues of facts are tried and determined in other civil actions.  Thus, depending on the issue, a declaratory judgment can be either legal or equitable, and thus, the filing of a declaratory judgment action for insurance coverage, does not necessarily engender the right to a jury trial.  In sum, in a declaratory judgment action, the right to a jury trial depends on whether the action is the counterpart to one in equity or in law.”

In reviewing bad faith claims, the Court must looked at the basis for the cause of action and the requested relief.  In the plaintiff’s complaint, as assignee of Caruso’s rights under Caruso’s insurance policy, she alleged that NJM violated its fiduciary duty by failing to negotiate the claim in good faith.  Further, that NJM refused to pay the excess judgment of $1,408,320.23.  Thus, the plaintiff sought both a degree of specific performance, ordering the defendant to pay the total judgment , as well as a declaration to the effect that the defendant was responsible therefor.  The Court wrote, “No matter how plaintiff has couched her claim against NJM, it is undisputed that her Rova Farms bad faith claim is a garden variety action at law that requires that she prove that defendants breached its insurance contract by its failure in bad faith to settle plaintiff’s original personal injury suit against NJM’s insured.”  The court continued, “It is beyond question that a breach of contract claim was at common law and remains today an action triable to a jury.”   Finally, the Court stated that “Determining that the right to trial by jury attaching to a Rova Farms bad faith claim does not mean that every Rova Farms bad faith suit may only be tried through a jury.  As with all other civil cases, any party to a civil action at law may demand trial by jury.  Likewise, even if a jury trial is allowable as of right and, in fact, has been demanded, the parties nevertheless retain the right to consent to trial by the court without a jury.”

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