OLIREI INVESTMENTS, LLC v. LIBERTY MUTUAL INSURANCE COMPANY et al

Filing 14

OPINION and ORDER GRANTING 11 Motion for Judgment on the Pleadings, pursuant to Rule 12(c), as to Plaintiff's claim for bad faith coverage denial; DENYING without prejudice as moot Defendant's motion to sever the bad faith coverage deni al pursuant to Rule 21. Plaintiff is granted leave to amend the complaint to cure the deficiencies identified above, and specifically to support the bad faith claim with factual allegationsfrom in and around the time period that Defendants denied coverage in March 2017, etc. Signed by Judge Stanley R. Chesler on 5/10/18. (cm, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
NOT FOR PUBLICATION
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OLIREI INVESTMENTS, LLC
Plaintiff,
v.
LIBERTY MUTUAL INSURANCE
COMPANY AND OHIO CASUALTY
INSURANCE COMPANY
Defendants.

Civil Action No. 18-524 (SRC)

OPINION & ORDER

CHESLER, District Judge
This matter comes before the Court upon the filing by Defendant Liberty Mutual Insurance
Company (“Liberty”) and Defendant Ohio Casualty Insurance Company (“Ohio Casualty,”
collectively “Defendants”) of a motion for judgment on the pleadings as to the bad faith claim by
Plaintiff Olirei Investments, LLC (“Plaintiff”) and a motion to sever and stay Plaintiff’s bad faith
claim (Docket No. 11). Plaintiff opposes this motion (Docket No. 12), and Defendants have
submitted a reply brief (Docket No. 13). The Court has reviewed the parties’ submissions and
proceeds to rule without oral argument. See Fed. R. Civ. P. 78(b). For the reasons set forth below,
Defendants’ motion is granted.

I.

Factual and Procedural Background

Plaintiff is an LLC that entered into an insurance policy with Defendants to insure its
principal place of business. The policy covered the period from August 24, 2016 to August 24,
2017. Docket No. 1-1 (Plaintiff’s Complaint, “Compl.” ¶ 8). In February 2017, a managing
member of Plaintiff visited the insured property and discovered that “the entire basement floor

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had been flooded and was covered with water.” Compl. ¶ 12. By letter dated March 31, 2017,
Defendants denied coverage for the ensuing water damage, stating that it resulted from either
freezing pipes or “wear and tear,” neither of which Defendants contend is covered by the
insurance policy. Compl. ¶¶ 46-50. By letter dated August 18, 2017, counsel for Plaintiffs wrote
to Defendants, stating that Defendants “offered no credible basis or evidence to support its
denial” and that they “had failed to investigate alternative causes of the water leak, including the
possibility that an intruder had entered the Building and turned the water on.” Compl. ¶ 56. In
response, counsel for Defendants responded by letter dated September 15, 2017, that the claim
had been denied due to “water leaking from a frozen pipe.” Compl. ¶ 57.
In November 2017, Plaintiffs filed a first party insurance coverage suit against
Defendants in New Jersey Superior Court, alleging two causes of action. Plaintiffs allege that
Defendants breached the operative insurance contract by denying coverage for the water leak,
and additionally that Defendants acted in bad faith in making the claim determination. To
support the bad faith claim, Plaintiffs cite the post-denial August 18 letter from Plaintiff’s
counsel and the September 15 response letter from counsel for Defendants. Specifically,
Plaintiffs allege that that Defendants “intentionally and willfully contrived an unsupported basis
for denying the Claim” because the September 15 letter from Defendants’ counsel allegedly
contains numerous falsehoods “in furtherance of [Defendants’] effort to support denial of the
Claim.” Compl. ¶¶ 60-68, 83.
On January 12, 2018, Defendants removed the suit to this District on the basis of
diversity jurisdiction. In the motion at bar, Defendants argue that judgement as a matter of law
should be granted on the bad faith claim, since the complaint relies on communications by
Defendants’ counsel that post-date the March 31, 2017 coverage denial. Docket No. 11-2, 7-8. In

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response, Plaintiffs argue that the post-denial communication by counsel for Defendants “merely
articulates and confirms th[e] bad faith” that existed when the claim was denied. Docket No. 123, 8.
II.

Legal Standard
a. Motion for Judgment on the Pleadings

Pursuant to Federal Rule of Civil Procedure 12(c), a party may move for judgment on the
pleadings “[a]fter the pleadings are closed—but early enough not to delay trial.” Fed. R. Civ.
P. 12(c). In such a motion, the moving party may raise the grounds that the pleading fails to state
a claim upon which relief may be granted (see Fed. R. Civ. P. 12(h)(2)), in which case the Rule
12(c) motion is governed by the same standard of review as a Rule 12(b)(6) motion. Turbe v.
Gov't of the V.I., 938 F.2d 427, 428 (3d Cir. 1991). That is, to survive the motion for judgment
on the pleadings, the complaint must contain “sufficient factual allegations, accepted as true, to
‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). This plausibility standard is
satisfied where the complaint “pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S.
at 556).
In considering the Rule 12(c) motion, the court must view “the facts alleged in the
pleadings and the inferences to be drawn from those facts in the light most favorable to the
plaintiff.” D.E. v. Cent. Dauphin Sch. Dist., 765 F.3d 260, 271 (3d Cir. 2014) (internal citations
omitted). Judgment as a matter of law under Rule 12(c) is not appropriate “unless the movant
clearly establishes there are no material issues of fact, and he is entitled to judgment as a matter
of law.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005). At the Rule 12(c)

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stage, a court “court generally considers only the complaint, any attached exhibits, documents
relied upon in the complaint, matters of public record, and any indisputably authentic
documents.” Hlista v. Safeguard Properties, LLC, 649 F. App’x 217, 218 (3d Cir. 2016) (internal
citations omitted)
III.

Discussion

New Jersey law imposes an implied obligation of good faith and fair dealing on all
contracts, which includes a duty of good faith for insurance companies when processing firstparty claims. Badiali v. New Jersey Mfrs. Ins. Grp., 220 N.J. 544, 553 (N.J. 2015). Where the
insurance company denies coverage in bad faith, the plaintiff may accordingly assert a claim for
violation of this good faith duty that is distinct from the underlying claim. Tarsio v. Provident
Ins. Co., 108 F. Supp. 2d 397, 401 (D.N.J. 2000). To make this derivative bad faith claim, the
insured plaintiff must show “the absence of a reasonable basis for denying benefits of the policy”
and that the insurance company knew or recklessly disregarded the “lack of a reasonable basis
for denying the claim.” Pickett v. Lloyd's, 131 N.J. 457, 473 (N.J. 1993).
An insurance company does not act in bad faith if the plaintiff’s insurance claim was
“fairly debatable.” Unless the plaintiff can establish a right to summary judgment on the
underlying cause of action, the insurance coverage denial is considered “fairly debatable” and the
court must dismiss the bad faith claim. Tarsio, 108 F. Supp. 2d at 401. As such, if the court
determines that genuine issues of material fact preclude summary judgment on plaintiff’s
underlying cause of action—i.e. plaintiff’s entitlement to insurance benefits—it must dismiss as
a matter of law the bad faith claim. Id. at 401; see also Hudson Universal, Ltd. v. Aetna Ins. Co.,
987 F. Supp. 337, 341 (D.N.J. 1997).

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Plaintiff’s bad faith claim will only survive Defendants’ motion for judgment on the
pleadings if the complaint plausibly demonstrates, accepting all the factual allegations as true,
that the denial lacked any “reasonable basis” and that Defendants knew or recklessly disregarded
this fact. To support its claim for bad faith, Plaintiff alleges that Defendants (1) “intentionally
and willfully contrived an unsupported basis for denying the Claim” (Compl. ¶ 83); (2) “willfully
and intentionally misrepresented their communications with Garner and Olirei” (Compl. ¶ 84);
and (3) “falsely accused Garner of failing to preserve evidence of the water penetration after
having been requested to do so.” Compl. ¶ 85.
These factual allegations concerning bad faith appear largely predicated on statements
contained in the September 15, 2017 letter by counsel for Defendants. The allegation that
Defendants “falsely accused Garner of failing to preserve evidence of the water penetration”
(Compl. ¶ 85) derives solely from the September 15 letter. See Compl. ¶ 65. (“the [September
15, 2017] Cossolini letter falsely implies that Garner and/or Olirei purposefully destroyed or
disposed of pipe associated with the water infiltration after being asked to preserve such pipe”).
Similarly, the allegation regarding willful misrepresentation of communications with Garner and
Olirei appears predicated on allegedly false statements contained in the September 15 letter. See
Compl. ¶ 63 (“The Cossolini Letter states, falsely, that Garner advised White on March 2, 2017
that ‘no work had yet been done on the building.’”). Finally, Plaintiff’s allegation that
Defendants acted in bad faith when they “willfully contrived an unsupported basis” appears
largely, although perhaps not entirely, predicated on alleged falsehoods contained in the
September 15 letter. See, e.g. Compl. ¶ 58 (“The Cossolini Letter stated, incorrectly, that . . .”);
Compl. ¶ 60 (“The Cossolini letter stated, falsely, that . . . “); Compl. ¶ 65 (“The Cossolini Letter
inaccurately suggests that . . .”).

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To the extent that Plaintiff’s bad faith claim rests on statements by Defendants’ counsel
contained in the September 17, 2017 letter, this Court will dismiss the cause of action as
deficient as a matter of law. This letter, sent approximately six months after the Defendants’ had
denied coverage, cannot support Plaintiff’s bad faith claim. First, certain of Plaintiff’s
allegations—regarding “willful[] and intentional[] misrepresent[ations]” and “false[]
accus[ations]” contained in the post-denial letter—do not support a claim for bad faith insurance
denial under New Jersey law. Specifically, bad faith insurance denial does not comprise any and
all alleged misconduct by Defendants, such as the “false accusations” regarding the failure to
preserve evidence of the water penetration. Compl. ¶ 85. Rather, Plaintiff’s claim for bad faith
coverage denial may only be supported by factual allegations concerning whether Defendants
lacked a reasonable basis for denying coverage.
More broadly, Plaintiff’s allegations about misrepresentations, falsehoods, and other
indicia of bad faith from the September letter cannot support a claim for bad faith coverage
denial because the August and September letters, sent between counsel for Plaintiff and
Defendants respectively, were exchanged well after Defendants had denied coverage. Plaintiff’s
bad faith claim fundamentally turns on whether or not Plaintiff had coverage from Defendants at
the time the accident occurred. As a matter of law, the bad faith claim may only proceed if this
Court could grant Plaintiff summary judgment on the underlying claim.
It is of no moment what alleged mischaracterizations or misrepresentations counsel for
Defendants made in September, because such allegations have no bearing on whether Plaintiff’s
insurance policy, as it existed between the parties in March 2017, covered the water damage
from the accident. Instead, only factual allegations that address whether or not Defendants lacked
a reasonable basis for denying coverage in March 2017 may support Plaintiff’s bad faith claim.

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As such, Plaintiff’s reliance on such post-denial communications by counsel for Defendants is
deficient as a matter of law to support the claim for bad faith insurance denial.
For the forgoing reasons, this Court will grant Defendants’ motion for judgment on the
pleadings and will dismiss Plaintiff’s bad faith claim without prejudice. Additionally, this Court
will grant Plaintiff leave to amend the complaint, in order to support the bad faith claim with
sufficient factual allegations to plausibly demonstrate that, in or around the time Defendants
denied coverage in March 2017, the Defendants knew or recklessly disregarding the lack of a
reasonable basis for denying the claim.
IV.

Conclusion

IT IS on this 10th day of May, 2018;
ORDERED that Defendants’ motion for judgment on the pleadings, pursuant to Rule
12(c), as to Plaintiff’s claim for bad faith coverage denial is GRANTED and the claim is
dismissed without prejudice; and further
ORDERED that Defendants’ motion to sever the bad faith coverage denial pursuant to
Rule 21 is DENIED without prejudice as moot; and further
ORDERED that Plaintiff is granted leave to amend the complaint to cure the deficiencies
identified above, and specifically to support the bad faith claim with factual allegations—from in
and around the time period that Defendants denied coverage in March 2017—to demonstrate that
Defendants knew or recklessly disregarded the absence of a reasonable basis for denying
Plaintiff benefits under the policy.

/s Stanley R. Chesler___
STANLEY R. CHESLER
United States District Judge

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