A Capehart Scatchard Blog

No Bad Faith Found Against Carrier for Settling Multiple Claims for Policy Limits Even Though Potential Additional Claim Existed

By on September 25, 2015 in Blog with 0 Comments

On July 18, 2008, a fire ignited in the Khatri home, a multi-family dwelling, resulting in damage to the house as well as surrounding properties and serious bodily injury to an upstairs tenant and a firefighter responding to the fire. Khatri had a $300,000 homeowners policy with NJM. In Doitch v. Khatri, 2015 N.J. Super. Unpub. LEXIS 2134  (App. Div. Sept. 3, 2015), Khatri filed a third party action against NJM for failing to cover a claim after NJM had exhausted its policy limits in paying these claims.

Following the fire, Khatri faced multiple claims and lawsuits. Between property damage and bodily injury claims filed, claimants sought a total of more than $7.5 million in damages against him.

After NJM paid one small claim, $290,501 remained on the policy. A month before trial, the 3 remaining claimants agreed to take the policy limits for the remainder of the policy limits. NJM notified Khatri of the proposed settlement and also advised him that it was aware of one other property subrogation damage claim from State Farm in the amount of $36,000. This claim was for damage claimed by a tenant, Sharon Masgay-Doitch, for her contents. That claim was denied years before and NJM had heard nothing since from State Farm.

NJM recommended the settlement to its insured (Khatri) because a recovery would likely exceed the insured’s policy limits. However, it made the insured aware that this potential State Farm claim would not be satisfied with this settlement. Khatri did not object and these 3 claims were settled, exhausting the policy limits.

Based upon the language of NJM’s policy, its duty to settle or defend ended when it paid for damages from an occurrence that equaled its limit of liability. Further, its total liability for all damages from any one occurrence will not be more than the limit of its liability.

Three months after the settlement, NJM received notice that Masgay-Doitch filed suit against Khatri and then State Farm filed suit against Khatri about 10 months thereafter. Khatri filed this third party suit, demanding that NJM indemnify and defend him as to these claims. Khatri argued that NJM’s failure to defend was a breach of his insurance policy.

The trial court granted NJM summary judgment and dismissed the suit. The Appellate Division affirmed.

Khatri argued that NJM had a duty to initiate and engage in settlement negotiations with Masgay-Doitch before settling for its policy limits. However, absent bad faith, an insurer may settle with one or more claimants, even if the settlements may exhaust the policy limits. Here, the Appellate Division found no evidence of bad faith.

To the contrary, NJM negotiated a very favorable settlement within the $300,000 policy limits in a suit that exceeded $7.5 million. The court found unpersuasive the plaintiff’s argument that NJM should have proactively searched for other claims to include in the settlement, in light of the magnitude of the pending claims in the lawsuit. Further, the court pointed out that the insured knew that the global settlement would exhaust the policy limit and would not include the Masgay-Doitch claim – yet the insured nevertheless agreed with the proposed course of action.

Thus, the Appellate Division found nothing to suggest that NJM acted in bad faith or breached its duty owed to its insured. Hence, it determined that summary judgment was properly granted to NJM.

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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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