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Insurance: Getting What You Paid For

On behalf of Cohn Lifland Pearlman Herrmann & Knopf LLP | Sep 15, 2016 |


Imagine this: You are driving along when a car cuts you off, forcing you over the median and into oncoming traffic. You collide with another car, and you are then hit by a tractor trailer. You are severely injured, and the car that caused your injuries is nowhere to be found. It sped off, never to be seen again. Thankfully, you purchased “Uninsured Motorist,” or “UM,” coverage. This coverage protects you when you are injured by a driver who is unknown or uninsured. But, when you ask your insurance company to pay up, it refuses, and forces you to go to trial instead of offering a reasonable settlement.

This is exactly what happened to Kwabena Wadeer in Wadeer v. New Jersey Manufacturers Insurance Company (“NJM”). Mr. Wadeer’s NJM policy included UM coverage of up to $100,000.

First, Mr. Wadeer presented his case to NJM, but NJM did not offer any money. Then, Mr. Wadeer and NJM went before a panel of arbitrators, who determined that Mr. Wadeer was entitled to $87,500. NJM refused to pay.

Mr. Wadeer accused NJM of acting in bad faith and filed a complaint against NJM for coverage of his claim. They then went to a second arbitration, where the arbitrator determined that Mr. Wadeer was entitled to $162,000. NJM again refused to pay. So, Mr. Wadeer submitted a settlement proposal to NJM for $95,000, but NJM declined once more.

After a trial, the jury awarded Mr. Wadeer $222,175. Ordinarily, insurance companies are only required to pay up to the maximum amount provided under the policy. Here, Mr. Wadeer argued to the judge that he should receive the entire jury verdict due to NJM’s bad faith in refusing to settle the case. The judge reduced his award to the $100,000 policy limit, finding that because the prior arbitration awards varied, NJM was within its rights to refuse to settle.

So, Mr. Wadeer filed a new lawsuit against NJM based on its bad faith actions. The case ultimately went to the New Jersey Supreme Court, which determined that Mr. Wadeer’s case was barred under a legal principal called “res judicta,” which means “a matter already judged.” The Court found that Mr. Wadeer’s argument in his new case was identical to his argument in his old case that NJM should have had to pay the full jury award because of bad faith.

However, the Court felt that a plaintiff suing his or her own insurance company for coverage may be able to bring a separate case against the insurance company for bad faith so long as the plaintiff did not raise that issue in their first case for coverage. Unfortunately, this second suit is not technically authorized under the current court rules, so the Court referred it to a committee for review.

Indeed, under the current law, there is no incentive whatsoever for an insurance company to settle these type of cases prior to trial. It is very common for an insurance company to delay as long as possible because, in the end, the company generally only has to pay up to the maximum of its policy limits anyway. Hopefully, the case discussed above will inspire the legislative tides to change on the insurance companies so that they will be reasonable in settlement negotiations from the outset. After all, you should get what you paid for.