Regular readers of this blog know that I often whine about – er, raise persuasive points about – the recent trend in the courts (especially federal courts) to erode the longstanding pro-policyholder rules of insurance policy construction.
But the situation goes beyond that. The federal court here in New Jersey is now apparently heightening the pleading standards needed to pursue a claim against an insurance company for wrongful denial of coverage.
For years, New Jersey has been a notice-pleading state, meaning that only a short statement of the basis for the policyholder’s claim was necessary to survive a motion to dismiss. In addition, all pleadings were to be liberally construed “in the interest of justice”. (I remember agonizing over the words of a draft pleading years ago. My boss said, “Gene, the only purpose of a pleading is to keep your case from getting thrown out of court. Stop obsessing.”)
That’s no longer how any of this works, said the court in Bauman v. Hanover Insurance Company, which you can read here.
Briefly, Bauman is an attorney who was sued for alleged malpractice. He tendered the claim to his errors and omissions carrier, Hanover. Hanover denied coverage because reasons, so Bauman filed suit to try to enforce his coverage. His complaint alleged that the bases for the coverage denial were wrong, stating in part as follows: “Plaintiff promptly placed the Defendant The Hanover Insurance Group and The Hanover Insurance Company on notice of the Woerner Claim through [its broker] seeking to have the Defendant insurance carrier provide Plaintiffs with a defense and indemnification in the professional malpractice proceeding initiated via the Woerner Claim…Despite repeated requests, the Defendant insurance carrier have refused to defend the Plaintiffs in the Woerner Claim.”
Presumably, Hanover knew the reasons it denied the claim, and also knew that Bauman disagreed with them. That should be enough to get the case moving, right? Wrong, said Judge Cecchi. The Judge essentially held that it’s not enough to apprise the insurance company of the basics of the dispute. You have to write more of a novella about what you intend to prove.
Specifically, the Court wrote as follows:
“Under New Jersey law, a complaint alleging breach of contract must, at a minimum, identify the contracts and provisions breached. Specifically, failure to allege the specific provisions of contracts breached is grounds for dismissal. Here, Plaintiffs’ complaint references—albeit without citing, quoting, or attaching as an exhibit—the Policy as a contract for liability insurance between the parties. However, Plaintiffs do not identify any specific language or provisions of the Policy that they allege the Hanover Defendants breached. Instead, Plaintiffs make the conclusory assertion that the Hanover Defendants have breached the contract of insurance ‘by refusing or failing to fully perform’ under it. As a result, Plaintiffs’ breach of contract claim against the Hanover Defendants is dismissed.” [Cleaned up.]
The Court also dismissed Bauman’s claim against his insurance broker for allegedly procuring inadequate coverage, writing:
“Under New Jersey law, a negligence claim by an insured against an insurance broker requires showing that the broker either (1) failed completely to arrange for an insurance policy or (2) delivered a policy that is void, materially deficient or otherwise does not provide the coverage the broker agreed to procure. Here, the complaint only alleges that Defendant USI was negligent ‘to the extent that there is a lack of, or insufficient coverage from the Policy as to the underlying lawsuit. That in Plaintiffs’ eyes the Policy’s coverage was ‘insufficient,’ without more, does not state a plausible claim of negligence against Defendant USI. There is no debate that Defendant USI secured Plaintiffs the Policy, and Plaintiffs do not allege that the Policy was void, materially deficient, or lacking coverage Defendant USI promised to procure. Therefore, Plaintiffs’ negligence claim against Defendant USI is dismissed.” [Cleaned up.]
Notably, the policyholders’ counsel tried to clear up any issues in his brief opposing the motion to dismiss, cogently writing as follows:
“The Policy defines Wrongful Act as ‘any actual or alleged negligent act, error, omission, misstatement, misleading statement, breach of duty . . by an Insured in the rendering of or failure to render Professional Services or Non-Profit Services’… Professional Services is defined in the Policy as, among other things, ‘Services as a lawyer, mediator, arbitrator, notary public, administrator, conservator, receiver, executor, guardian, trustee, or in any similar fiduciary capacity, but only if the services rendered are those ordinarily performed by a lawyer.’
“Here, Plaintiff James Woerner asserts in his liability expert report from Ryan Cooper, Esq. that Drew Bauman committed legal malpractice by failing to provide a verbal instruction to not send funds via wire transfer in the course of him providing ‘Professional Services’ to James Woerner in the real estate transaction. The Cooper report also asserts that Drew Bauman was required to communicate with reasonable diligence and promptness to his client when he received the text message from Mr. Woerner while at the bank. These allegations by the liability expert for James Woerner clearly address a claim against Mr. Bauman under the Policy for Wrongful Acts in the rendering of or failure to render Professional Services.”
Not good enough, said the Court! Regardless of what the insurance company actually knows, or what you’ve said in the brief, the complaint is deficient!
I’m not sure how this ruling comports with the directive in Rule 1 of the Federal Rules of Civil Procedure, that the rules “should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding,” but it is what it is.
The takeaway here is simple. As the Courts continue to become more conservative and defense-friendly, and as they try to dismiss as many cases as possible to clear their clogged dockets, policyholders can’t expect a break with respect to any technical requirements in the rules. You have to be a rules maven, you have to know the elements of your claim, and you have to follow all of the prerequisites without exception. Or, as in Bauman, the Court may tell you that professional liability insurance policies somehow don’t cover professional liability.