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Changes to New Jersey Rules Governing Civil Practice Affect Litigation of UM/UIM and Bad Faith Claims

February 13, 2017

New Jersey’s Civil Practice Committee has made two significant changes to the Rules Governing the Civil Practice — regarding the entire controversy doctrine and the offer of judgment rules — following the New Jersey Supreme Court’s invitation to do so.

In Wadeer v. N.J. Manufacturers Insurance Co., 220 N.J. 591 (N.J. 2015), the New Jersey Supreme Court was faced with a decision regarding litigation of a bad faith case stemming from a UM claim. In that case, plaintiff submitted a UM claim to his insurer following an auto accident. The claim was subsequently arbitrated, but the insurer rejected the award. Following the rejection, plaintiff filed suit, submitted an offer of judgment to the insurer, and subsequently was awarded a verdict that was well above the offer of judgment and well above the policy limits. Although the arbitration panel had found plaintiff partially liable for the accident, the jury determined that plaintiff was not liable. In the proceedings surrounding entry of judgment, the plaintiff argued that he was entitled to recover the entire amount of the jury verdict because the insurer had acted in bad faith. The insurer contended that plaintiff had failed to plead such a cause of action. The trial court molded the award to reflect the policy limits; in its decision, the trial court expressly found that the insurer had not acted in bad faith. The plaintiff then filed a bad faith complaint; the insurer was subsequently granted summary judgment on the grounds that the new complaint was barred by the entire controversy doctrine and by res judicata. The Appellate Division affirmed on entire controversy doctrine grounds. The New Jersey Supreme Court then took the case.

Wadeer was notable for several reasons. One is that, although it decided the case on other grounds than the Appellate Division had, it addressed the difficulties inherent in applying the entire controversy doctrine to bad faith claims in the UM context. Those difficulties included the problems with discovery where both counts moved forward simultaneously and the problems created by potentially repeated amendments to the complaint for alleged bad faith acts during litigation. The court believed that “the goals of the entire controversy doctrine are not served by mandating that the plaintiff simultaneously file a first-party bad faith claim with the underlying breach of contract/UM lawsuit.”  The court specifically referred the issue to the Civil Practice Committee.

The Committee weighed in, and effective September 2016 has changed the rule governing the entire controversy doctrine. Rule 4:30A now contains a specific exemption for UM/UIM claims:  “Claims of bad faith, which are asserted against an insurer after an underlying uninsured motorist/underinsured motorist claim is resolved in a Superior Court action, are not precluded by the entire controversy doctrine.”  Now, bad faith claims can be brought separately following the resolution of a UM or UIM claim, allowing courts and the parties to avoid the administrative issues relating to bifurcation of the claims and discovery issues relating to work product issues that so complicate combined litigation.

Wadeer was significant also for its referral to the Civil Practice Committee to resolve ambiguities relating to the offer of judgment rule, Rules 4:58-2 and 4:58-3. The court explained the rule as it existed:  “We find that the molding of a monetary jury award is appropriate when done to conform with and reflect allocation of liability. However, in the UM/UIM context, where reduction [of a verdict] is based not on a tortfeasor’s comparative negligence, but instead on the policy limits of a given carrier, we find that the current construction of Rule 4:58-2 provides no incentive for such carriers to settle. Rather, under the current rule, carriers are prone to take their chances at trial where the offer of judgment is somewhat near their policy limits because they have relatively little to lose in doing so.” 

Again, the Civil Practice Committee undertook the review encouraged by the court, and as of September 2016 revised the offer of judgment rules to provide that a verdict should be reduced only by any percentage of comparative negligence for purposes of comparison to the amount of the offer of judgment. Rule 4:58-2 now specifically allows for recovery of litigation expenses, prejudgment interest and attorney’s fees where the claimant obtains a “monetary award by jury or non-jury (adjusted to reflect comparative negligence, if any) in an amount that is 120% of the offer or more . . . .”  Concomitantly, the Committee revised Rule 4:48-3 to reflect that the same principles apply to an offer of judgment by an insurer in a UM/UIM case. These changes should revitalize the use of the offer of judgment rules in UM/UIM litigation. 

Disclaimer: This post does not offer specific legal advice, nor does it create an attorney-client relationship. You should not reach any legal conclusions based on the information contained in this post without first seeking the advice of counsel.

About the Author:  

Lindsay B. Andreuzzi is a Principal in the Firm's Insurance Law Department. She focuses her litigation practice on advising and defending personal, commercial and surplus line insurers in complex insurance coverage matters and allegations of bad faith claims handling. Learn More >>