PORT LIBERTE HOMEOWNERS ASSOCIATION, INC. v. LEXINGTON INSURANCE COMPANY
MEMORANDUM OPINION/ORDER granting in part and denying in part 12 Motion to Dismiss. Signed by Judge Kevin McNulty on 4/25/17. (DD, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
PORT LIBERTE HOMEOWNERS
Civ. No. 16-7934 (KM-MAH)
MEMORANDUM OPINION and
LEXINGTON INSURANCE COMPANY,
KEVIN MCNULTY, U.S.D.J.:
This is an insurance coverage action arising from damage inflicted on
Port Liberte by Superstorm Sandy. Port Liberte, a condominium complex in
Jersey City, sues its property insurer, Lexington Insurance Company, which
paid out nearly $6 million on its claim but declined to reimburse it for items
totaling approximately $3.3 million. The Complaint (ECF no. 1) is in four
counts: (1) Breach of Contract; (2) Breach of the Implied Covenant of Good
Faith and Fair Dealing; (3) Breach of Fiduciary Duty; and (4) Declaratory
Now before the court is Lexington’s motion (ECF no. 12) to dismiss
Counts 2 and 3 of the Complaint or, in the alternative, to stay those two
Counts pending resolution of Counts 1 and 4. For the reasons stated herein, I
will grant the requested alternative relief and stay Counts 2 and 3.
The Complaint alleges that Lexington wrongly classified certain items as
“Outdoor Property,” which had the effect of subjecting those items to a
contractual sublimit. (Cplt.
35—70) Lexington allegedly misclassified certain
damage items as “Debris Removal,” and some disposal costs as
“Decontamination Costs,” categories which also are subject to a contractual
51—69) Lexington allegedly wrongfully denied Port Liberte’s
claims for consequential loss of monthly docking fees. (Cplt.
¶ ¶ 70—76)
Counts 1 and 4 straightforwardly allege that Lexington has thereby
breached the contract of insurance between the parties. They seek
reimbursement of the listed items and a declaration that they are covered.
Counts 2 and 3 allege that the same conduct constituted bad-faith conduct—
i.e., a breach of the implied covenant of good faith and fair dealing, or a breach
of a fiduciary duty.
A. Motion to Dismiss
Lexington first moves to dismiss Counts 2 and 3 for failure to state a
claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6). For the
purposes of a motion to dismiss, the facts alleged in the complaint are accepted
as true and all reasonable inferences are drawn in favor of the plaintiff. New
Jersey Carpenters & the Trustees Thereof v. Tishman Const. Corp. of New
Jersey, 760 F.3d 297, 302 (3d Cir. 2014). The factual allegations must be
sufficient to raise a plaintiff’s right to relief above a speculative level, such that
it is “plausible on its face.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 570
(2007).See id. at 570; see also West Run Student Housing Assocs., LLC v.
Huntington Nat. Bank, 712 F.3d 165, 169 (3d Cir. 2013). While “[tjhe
plausibility standard is not akin to a ‘probability requirement’.
it asks for
more than a sheer possibility.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
There does not seem to be any disagreement as to the essentials of these
causes of action. Breach of the covenant of good faith and fair dealing, in the
context of an insurance claim, requires “the absence of a reasonable basis for
denying benefits of the policy and the defendant’s knowledge or reckless
disregard of the lack of a reasonable basis for denying the claim.” Pickett v.
Lloyd’s, 131 N.J. 457, 473 (1993). Thus no liability will arise if the claim is
“fairly debatable.” Id. Breach of fiduciary duty requires “(1) the existence of a
fiduciary relationship between the parties; (2) the breach of the duty imposed
by that relationship; and (3) damages or harm to the plaintiff caused by said
breach.” Saland Stacy Corp. v. Freeney, No. 11-3439 (JLL), 2012 U.S. Dist.
LEXIS 38141, *36 (D.N.J. Mar. 21, 2012).
Lexington points out, with some justice, that Counts 2 and 3 do not
allege many specific facts that would elevate this coverage dispute to the level
of bad faith or a fiduciary breach. The partial denial of coverage is
characterized as heinous, largely through the medium of the piling on of
adjectives. Nor does the Complaint seem to allege any particular facts that
would support an inference that this ordinary insured/insurer relationship was
a fiduciary one.
It is possible to debate whether the plaintiff should be put to the burden
of amending these claims. I have determined, however, that it is neither
necessary nor desirable to consider these issues now. A stay of these two
counts in favor of Counts 1 and 4 will ensure a more orderly procedure and will
also place any future rulings about Counts 1 and 3 on a firmer factual footing.
B. Severance and Stay
This Court has the discretionary authority to sever and stay claims, for
purposes of pretrial proceedings, see Fed. R. Civ. P. 26(d)(2), or for trial, see
Fed. R. Civ. P. 42(b), in the interests of justice and efficiency. I find that a
severance and stay of Counts 2 and 3 makes sense, both as logic and as case
If, for example, there is no coverage, then denial of a claim cannot have
been in bad faith, so discovery and litigation on the bad faith issue will have
been wasted. Only if coverage is found need a court explore complicated issues
of the insurer’s motives and the level of certainty it was required to have before
denying a claim. In short, “[pjroof an insured is entitled to coverage as a matter
of law is a necessary pre-requisite to pursuing discovery regarding a bad faith
claim.” Wacker-Ciocco v. Gov’t Employees Ins. Co., 2014 WL 8187203 at *5
(App. Div. Mar. 16, 2015).
No surprise, then, that severance and stay of bad faith claims has been
called the “prevailing practice” in both the state and federal courts of New
Jersey. Abiona v. GEICOIridem. Co., No. CV 1.5-6013, 2016 WL 1046791, at *4
(D.N.J. Mar. 16, 2016) (Hiliman, J.). See also Riverview Towers Apartment Corp.
v. OBE Ins. Co., No. 14-6744 (JBS/JS), 2015 WL 1886007, *1 (D.N.J. Apr. 17,
2015); Beachfront N. Condo. Assoc., Inc. v. Lexington Ins. Co., No. 14-6706 RBK
JS, 2015 WL 3879665 (D.N.J. June 24, 2015) (recognizing “judicial economy
and efficiency for both parties will be promoted by avoiding expensive and timeconsuming discovery on plaintiff’s bad faith claim”); Procopio v. GEICO, 433
N.J. Super. 377, 383 (App. Div. 2013) (“Preserving the insured’s ability to
pursue his or her bad faith claim while deferring discovery thereon until the
resolution of the UM or UIM claim best accommodates the varying interests
involved.”). The same principle applies as to fiduciary breach claims.
Nothing about the claims here suggests that a finding of bad faith or a
fiduciary breach is so likely that the Court should collapse the sequence of
issues and depart from the usual, sensible practice of severance.
IT IS this 25th day of April, 2017,
ORDERED that the motion (ECF no. 12) is DENIED in part and
GRANTED in part, as follows:
The motion to dismiss Counts 2 and 3 is DENIED as presented,
The alternative motion to sever and stay Counts 2 and 3 until
further order of the Court is GRANTED.
HON. KEVIN MCNULTY, u.s4,)
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