Back in the halcyon days of insurance coverage litigation (before many defense-oriented judges began to view themselves as Guardians at the Gate of the Insurance Industry), New Jersey courts would occasionally hand down landmark decisions to protect the policy-buying public from sharp practices by carriers. One of those decisions was Griggs v. Bertram, 88 N.J. 347 (1982).

In New Jersey, you’ll sometimes hear lawyers talk about a “Griggs settlement.” Let’s look at the Griggs case in a little detail to understand what that means.

Griggs involved a personal injury claim stemming from a schoolyard fistfight. Bertram, the policyholder, notified his homeowners’ carrier, Franklin Mutual, of the claim before an actual suit was filed. Over a year later, and only after suit was filed, Franklin Mutual denied coverage.

Abandoned by his carrier, Bertram defended himself and  settled the suit. The settlement provided that a judgment in the amount of $9,000 would be entered in favor of Griggs, the injured plaintiff. ($9000! Those were the days, indeed!) Griggs agreed not to enforce the judgment against Bertram, who, in turn, assigned his insurance claim against Franklin Mutual to Griggs. In other words, the plaintiff agreed to settle for the value of the insurance claim, and to pursue the carrier himself.

Needless to say, Franklin Mutual was unhappy about this. How dare a policyholder enter into a settlement without our approval! How dare they assign their rights to the plaintiff! Yes, we completely denied coverage, but so what? They unfairly deprived us of our divine right to deny it again!

The Court disagreed with Franklin Mutual, finding that once a carrier denies coverage, or delays resolution of the claim for an inordinate period of time, it loses the right to contest the amount of a settlement reached by the policyholder.  The policyholder, however, must show that the settlement was fair and reasonable under the circumstances. And assigning the policyholder’s insurance claim to the underlying plaintiff is fair game.

This sounds like a wonderful weapon in the arsenal of policyholders when they get the run-around from their insurance companies. The problem is that many judges hate it. We have a case in the office involving a Griggs settlement, for example. I won’t disclose too much, since it’s currently pending in the Appellate Division. An insurance company for the underlying defendant (I’ll call the carrier “Stonewall”) agreed to pay less than half of the defense costs associated with a claim made by our client, under a reservation of rights. That meant, of course, that the defendant was paying for more than half of the defense itself. Stonewall dragged its feet on settlement with us, irritating the trial judge who wanted the case settled. In a private session with us, the judge suggested that we settle around Stonewall, and that we take an assignment of the claim against Stonewall to get the deal done (the classic Griggs settlement). So, never missing a chance to keep a judge happy, we did that.

Unfortunately, the case was then assigned to a new judge, who at the urging of Stonewall, decided that the arrangement was unsavory, and that the settlement was void. The judge then dismissed our case. Stonewall’s argument was that, since they were paying for the defense, they had a right to control settlement negotiations. Of course, they were doing nothing to try to settle the claim, and, as I said, they were paying less than half of the defense costs. That, unfortunately, didn’t seem to matter, because, as I said, many judges hate Griggs.

But, given the right circumstances, even anti-Griggs judges sometimes will grudgingly concede that Griggs is alive and well. Take, for example, the recent (unreported) decision in Brightview Enter. Sols. v. Farm Family Cas. Ins. Co., Civil Action No. 20-7915 (SDW) (LDW) (D.N.J. Oct. 15, 2020). Brightview was a perfect storm of insurance company recalcitrance, and even then, the District Court only reluctantly allowed a Griggs claim to proceed.

Brightview involved a landscaping company that was doing work around a real estate company’s office. The landscaping company unfortunately hired a subcontractor who messed up the job, causing water to leak inside the office. An employee of the real estate company (Morciglio) slipped and fell because of the water leak, hitting her head. She suffered severe brain injuries.

I’ve been involved in enough slip-and-fall coverage claims to know that, even if a doctor declares the claimant to be brain-dead as the result of the accident, you might have payment issues with the carrier. Claims adjusters for some reason often refuse to believe that a person can be seriously injured by falling on the floor.

Here, the landscaping company was an additional insured on the subcontractor’s policy, which was sold by Farm Family. The liability limit on the policy was $1 million. Farm Family knew that the exposure exceeded the liability limit. The plaintiff offered to settle with the landscaper and the subcontractor for a total of $650,000. But, of course, Farm Family only offered $250,000. The plaintiff declined to respond. Before trial, not wanting to roll the dice on a potentially large verdict, the landscaper settled directly with the plaintiff for $350,000. The landscaper then pursued Farm Family for that amount.

This seems like a pretty clear Griggs situation: A potential seven-figure claim that was settled for $350,000. But rather than coughing up the extra $100,000, Farm Family decided to fight the issue, and moved to dismiss the coverage suit brought by the landscaper.

The District Court denied Farm Family’s motion to dismiss, writing as follows:

“Brightview alleges that, given its potential financial exposure of millions, Farm Family’s $250,000 offer does not reflect a good faith effort to consider the insureds’ interests, and instead was a self-interested calculation that trial was worth the risk, given its own exposure was limited to $1 million. Brightview additionally alleges that Farm Family’s refusal to appropriately consider settlement forced Brightview (and CBRE) to independently settle, leaving [the subcontractor], represented by Farm Family-paid and directed attorneys, the sole defendant at trial. This allegedly allowed Farm Family to use the ultimately successful strategy at trial of placing total fault on the ‘empty chairs’ of Brightview and CBRE. As evidence of Farm Family’s bad faith maneuvering, Brightview alleges that the jury verdict form, approved by [the subcontractor], omitted Brightview and CBRE from allocation of fault, despite [the subcontractor’s] trial strategy of blaming them – reflecting Farm Family’s post hoc attempt to ‘justify’ its ‘failure to engage on settlement.’”

Seems like a straightforward theory to me. But the District Court said that it was “convoluted.” Nevertheless, since she was required to give the policyholder every benefit of the doubt on a motion to dismiss, the coverage suit was allowed to proceed.

The takeaway here is that, even though Griggs is a powerful weapon when carriers engage in their specialty (doing nothing), policyholders should proceed with extreme caution in the current insurance-company-friendly Court environment. If a policyholder tries to settle directly with the claimant, there had better be a detailed and clear record supporting why the settlement was reasonable under the circumstances, and showing how the carrier’s stubbornness was unjustified.