The Plaintiffs had successfully argued two bases for the bad faith claim:
(1) The insurer’s coverage denial after an improper investigation was knowingly reckless; and
(2) The insurer acted in bad faith in reporting the insured to the county prosecutor for an alleged violation of the New Jersey Insurance Fraud Prevention Act.
The court found that the carrier relied on two facts when it denied coverage, but according to the court, these two factors did not create a debatable reason for denying coverage.
The court also made it clear that even though the county prosecutor decided to bring the case to a grand jury, this alone did not create a fairly debatable basis to deny coverage; particularly when the grand jury discarded those charges on the same day they were presented.
As to the plaintiff’s claims related to the Consumer Fraud Act (CFA) based upon the denial of insurance coverage, the court did dismiss this count, as beyond the CFA’s scope. However, the court did permit the CFA claim to move forward based on the insurer’s making an insurance fraud claim to the county prosecutors.
