Absent Assignment of Rights from Insured, Plaintiffs Could Not Assert Bad Faith Claim against Insurer, New Jersey Supreme Court Rules

August 31, 2015

The New Jersey Supreme Court has ruled that, absent an assignment of rights from the insured, plaintiffs could not assert a bad faith claim against insurers that provided homeowners’ insurance coverage to the insured.

The Case

John and Pamela Ross alleged that their residence was damaged by the migration of home heating oil from a leaking underground oil storage tank located at a neighboring residence. The Rosses asserted claims in a New Jersey state court against the current and former owners of the property where the underground storage tank was located, based on common law theories of negligence, strict liability, private nuisance, and trespass, as well as violations of the New Jersey Spill Compensation and Control Act.

The Rosses also sued the insurers who provided homeowners’ coverage to a former owner of the neighboring property, asserting a claim for breach of the implied covenant of good faith and fair dealing, in addition to claims for nuisance and trespass.

The trial court dismissed the Rosses’ claims against the insurers and an intermediate appellate court affirmed.

The case reached the New Jersey Supreme Court.

The New Jersey Supreme Court’s Decision

The New Jersey Supreme Court affirmed, ruling that the trial court had properly dismissed the Rosses’ claims against the insurers.

In its decision, the court decided that the Rosses could not assert a bad faith claim against the insurers absent an assignment of rights from the homeowner to the Rosses, or evidence that the homeowner and her insurers had agreed to confer third party beneficiary status on the Rosses.

The court observed that an insurer’s duty of good faith and fair dealing had “never been applied in New Jersey” to recognize a bad faith claim by an individual or entity that was not the insured or an assignee of the insured’s contract rights. The court found that the parties to the insurance contracts did not have any intention to make the Rosses, then the neighbors of the insured, third party beneficiaries of their agreements, and that the alleged migration of oil from the insured’s property to the Rosses’ residence did not retroactively confer third party beneficiary status on them.

The court concluded that the insurers’ “duty of good faith and fair dealing in this case extended to their insured, not to [the Rosses]” and found “no basis” for the Rosses’ bad faith claims against the homeowner’s insurers.

The case is Ross v. Lowitz, No. 074200 A-101-13 (N.J. Aug. 6, 2015).

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  • Robert Tugander





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