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Without an Assignment from the Insured, Plaintiffs Are Unable to Sue Their Neighbor’s Homeowner’s Carriers Directly for Bad Faith

By on October 16, 2015 in Blog with 0 Comments

In Ross v. Lowitz, 2015 N.J. LEXIS 819 (2015), plaintiffs John and Pamela Ross appealed to the New Jersey Supreme Court the dismissal of a lawsuit they filed against their neighbors and their neighbors’ insurance companies, claiming that their property was damaged when home heating oil from their neighbor’s leaking underground oil storage tank migrated to their property. They sued the homeowners based upon various theories of negligence, nuisance, and the New Jersey Spill Act. They also sued the neighbor’s insurers in a bad faith claim, alleging a breach of the implied covenant of good faith and fair dealing.

The insurers did agree to pay for the remediation to the plaintiffs’ property. However, they did not arrange for such remediation until plaintiffs filed suit. Thus, there was about a 2 year delay from when the insurers allegedly agreed to remediate their property and when the actual remediation occurred.

The plaintiffs claimed that this 2 year delay by the insurers was a breach of their neighbors’ insurance policies. Further, they alleged that they were third party beneficiaries of the policies and could sue the carriers for a bad faith claim directly.

The trial court and the Appellate Division found that the plaintiffs did not have the right to sue the carriers directly without an assignment of rights. The Supreme Court affirmed this decision and dismissed the lawsuit against the carriers.

The Supreme Court pointed out that, as a general rule, a stranger to an insurance policy has no right to recover the policy proceeds. With an assignment, however, a third party may assert a bad faith claim against an insurer. Here, there was no assignment but, the plaintiffs contended that they were third party beneficiaries of their neighbor’s insurance policies and that the insurers breached their duty by delaying the remediation of their property.

To be a third party beneficiary under a contract, the third party would have to establish that they were the intended beneficiary of the contract. The Supreme Court noted that, in New Jersey, an insurer’s duty of good faith and fair dealing has never been applied to recognize a bad-faith claim by an individual or an entity that is not the insured or an assignee of the insured’s contract rights.

Here, there was no suggestion that the parties to the insurance contracts at issue intended to make the plaintiffs, the neighbors of the insured, a third party beneficiary of their policies. Further, the Court found that the migration of oil to their property did not confer third-party beneficiary status upon them. The duty of good faith and fair dealing in this case extended only to the insured, not to the plaintiffs. Thus, the Supreme Court found no basis for plaintiffs’ bad faith claims against their neighbors’ insurers.


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 30 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 2020-2023, 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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