Opinion ID: 1464124
Heading Depth: 1
Heading Rank: 6

Heading: What damages should be awarded for an insurer's bad-faith toward its insured in the payment of a first-party claim?

Text: Because we view the cause of action as sounding more in contract than in tort, we believe that the familiar principles of contract law will suffice to measure the damages. Under contract law, a party who breaches a contract is liable for all of the natural and probable consequences of the breach of that contract. Donovan v. Bachstadt, 91 N.J. 434, 444-45, 453 A. 2d 160 (1982). `Compensatory damages are designed `to put the injured party in as good a position as he would have had if performance had been rendered as promised.' 5 Corbin, Contracts § 992, p. 5 (1951).' Id. at 444, 453 A. 2d 160 (quoting 525 Main Street Corp. v. Eagle Roofing Co., 34 N.J. 251, 254, 168 A. 2d 33 (1961)). Implicit in these principles is some notion of foreseeability. Although not perfectly analogous, our doctrines allowing recovery for purely economic losses occasioned by tort offer some guidance: [D]uty is clearly defined by knowledge of the risk of harm or the reasonable apprehension of that risk. People Express, supra, 100 N.J. at 262, 495 A. 2d 107. Applying the definition, we ask, did the defendants know or should they have reasonably foreseen that the insureds were at risk of economic loss in addition to the policy benefits and that ascertainable economic damages would ensue from the conduct of the carrier? Ibid. Defendants argue that only the damages foreseeable at the time of the making of the insurance contract should be recoverable. Donovan, supra, 91 N.J. at 444, 453 A. 2d 160. They suggest that they would have charged a higher premium for any further risk. It is as though an insurance company would ask a policyholder to pay an extra premium to cover the risk that the insurance company would not pay the benefits when due. That the cause of action we now recognize will not of itself sustain a claim for negligent infliction of emotional harm suffered by an insured follows from our analysis. To sustain a claim for negligent infliction of emotional harm under our law, much more must be shown. Portee v. Jaffee, 84 N.J. 88, 101, 417 A. 2d 521 (1980). At the same time, carriers are not insulated from liability for independent torts in the conduct of their business. For example, [d]eliberate, overt and dishonest dealings, insult and personal abuse constitute torts entirely distinct from the bad-faith claim. Farr v. Transamerica Occidental Life Ins. Co., 145 Ariz. 1, 699 P. 2d 376, 383-84 (1984). Really intolerable conduct that is outrageous in character, such as threats by the insurer's agents to kill the insured and the insured's children, would undoubtedly sustain such an independent cause of action. See National Sec. Fire & Casualty Co. v. Bowen, 447 So. 2d 133, 137 (Ala. 1983). And finally, in order to sustain a claim for punitive damages, a plaintiff would have to show something other than a breach of the good-faith obligation as we have defined it. See Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 49-50, 477 A. 2d 1224 (1984) (finding that defendant's conduct must be wantonly reckless or malicious; wrongfulness of defendant's intentional act is critical). Our concept of the cause of action for an insurance company's bad-faith refusal or delay of payment of a first-party claim is consistent with New Jersey case law as it has developed. We agree with those courts that have held that absent egregious circumstances, no right to recover for emotional distress or punitive damages exists for an insurer's allegedly wrongful refusal to pay a first-party claim. See, e.g., Ellmex Constr. Co. v. Republic Ins. Co., 202 N.J. Super. 195, 205-08, 494 A. 2d 339 (App.Div. 1985), certif. denied, 103 N.J. 453, 511 A. 2d 639 (1986); Garden State Community Hosp. v. Watson, 191 N.J. Super. 225, 226-27, 465 A. 2d 1225 (App.Div. 1982). We also concur with the courts holding, in the highly-regulated area of personal injury protection, see N.J.S.A. 39:6A-5, that wrongful failure to pay benefits, wrongful withholding of benefits or other violation of the statute does not thereby give rise to a claim for punitive damages. See, e.g., Pierzga v. Ohio Casualty Group, 208 N.J. Super. 40, 504 A. 2d 1200 (App.Div.), certif. denied, 104 N.J. 399, 517 A. 2d 402 (1986); Kubiak v. Allstate Ins. Co., 198 N.J. Super. 115, 486 A. 2d 879 (App.Div. 1984), certif. denied, 101 N.J. 290, 501 A. 2d 952 (1985); Milcarek v. Nationwide Ins. Co., 190 N.J. Super. 358, 463 A. 2d 950 (App.Div. 1983); but see Carfagno v. Aetna Casualty & Sur. Co., 770 F. Supp. 245 (D.N.J. 1991) (refusing to recognize cause of action for either consequential or punitive damages for insurer's allegedly wrongful refusal to pay benefits based on Ellmex, Watson, Pierzga, Kubiak, and Milcarek ); Wine Imports, Inc. v. Northbrook Property & Casualty Ins. Co., 708 F. Supp. 105 (D.N.J. 1989) (same). Obviously, such rulings do not grant a license to commit torts. Clearly cases may arise in which the insurance company's conduct in response to an insured's claim for payment constitutes an independent tort. See Farr, supra, 699 P. 2d at 383-84; Bowen, supra, 447 So. 2d at 137.