N.J.: No-fault law does not bar bad-faith claim

Recently, the Superior Court of New Jersey, Appellate Division held in the case of Vera v. State Farm Indem. Co. that New Jersey’s no-fault law does not bar policyholders from pursuing a claim of bad faith against their insurer.

How did we get here?

The plaintiff and policyholder, Miguel Vera was injured in an automobile accident in September of 2016. He was seen by a doctor later that month during which an MRI of his right shoulder was recommended. Vera’s insurer, State Farm, initially denied the authorization for the MRI.

Eventually, State Farm approved the MRI, and the test was performed in November of 2016. Vera met with the same doctor in December of 2016 and January of 2017. During both appointments, surgery was recommended to repair Vera’s right shoulder. Then, Vera was examined by a doctor selected by State Farm in January of 2017. After which, State Farm authorized surgery, which took place in February of 2017. After the surgery, the doctor who performed the operation wrote a letter stating his opinion that the delay in authorization for both the MRI and surgery, prevented the doctor from repairing Vera’s injury (a torn biceps tendon) and it would leave Vera with a permanent injury to his shoulder.

In 2018, Vera brough suit against State Farm alleging the insurer acted in an arbitrary and capricious manner in delaying approval for medical treatment and was in breach of contract. State Farm moved for summary judgment and the trial court granted it. That court held that the plaintiff’s claims were claims for wrongful denial of personal injury protection benefits under the no-fault law. That law limits what can be recovered in a successful claim to only interest and attorneys’ fees. As such, Vera claims for compensatory and punitive damages were barred by law.

Vera appealed the decision to the Superior Court of New Jersey, Appellate Division.

What the Appellate Court said …

A two-judge panel held that Vera’s claims were not barred by New Jersey’s no-fault law and he could pursue a bad-faith claim. The court looked at two things:

First, whether Vera’s claims were barred by no-fault law. Here the court stated that “The No-Fault Act’s statutory scheme provides an exclusive remedy for some, but not all, automobile insurance claims.” The no-fault law specific to PIP (N.J.S.A. 39:6A-5) addresses the payment of PIP benefits, but it does not address medical authorization. Since Vera was claiming the latter and not the former, the court reasoned that his claims were not barred by law.

Second, the court looked at whether Vera made a viable claim for breach of contract against State Farm. Here the court found that an insurance carrier has a duty to act in good faith and that duty could include timely medical authorizations. As such, a breach of contract claim—for failing to give timely medical authorization—may be a viable claim.

What the Appellate Court did not say …

The court did not say that State Farm acted in bad faith. In this case, the court was only asked to decide whether Vera’s claims were barred by the no-fault law and whether breach of contract was a viable claim. As such, the court did not reach a ruling as to whether State Farm acted in bad faith.

In fact, the Appellate Division states Vera did not establish the elements necessary to support a claim of bad faith. The court stated that Vera would need to show three things. First, that State Farm had a good-faith obligation in its policy to authorize the MRI and surgery; second, that State Farm unreasonably delayed that authorization, and third, that the unreasonable delay caused him damages.

What happens next?

The Superior Court, Appellate Division, having decided that Vera’s claims could continue, sent the case back down to the trial court. The trial court will be tasked with determining whether State Farm acted in bad faith.