Under New Jersey law, an insurer cannot be held liable for bad faith in denying an insurance claim if the claim is “fairly debatable.” Therefore, unless a plaintiff can establish a right to summary judgment on the underlying cause of action for breach of contract, the coverage denial is considered “fairly debatable” and the court must dismiss the bad faith claim. See Pickett v. Lloyd’s, 131 N.J. 457, 473 (1993); Tarsio v. Provident Ins. Co., 108 F. Supp. 2d 397, 401 (D.N.J. 2000).

In Olirei Invs., LLC v. Liberty Mut. Ins. Co., 2018 U.S. Dist. LEXIS 78949 (D.N.J. May 10, 2018), the plaintiff alleged breach of contract and bad faith stemming from the insurer’s denial of a water damage claim. The plaintiff attempted to shift the focus away from whether the insurer lacked a reasonable basis for denying the claim and instead pointed to communications made by the insurer’s counsel months after coverage had already been denied. In opposition to the insurer’s motion for judgment on the pleadings with regard to the bad faith claim, the plaintiff argued that the insurer acted in bad faith by “willfully and intentionally” misrepresenting the communications between the parties and by falsely accusing the insured of failing to preserve evidence relevant to the claim.

The court found that these allegations were largely predicated on statements contained in a letter sent by the insurer’s counsel to plaintiff’s counsel approximately six months after the insurer denied coverage for the plaintiff’s claim. The plaintiff argued that, although the letter post-dated the denial of coverage, it “merely articulates and confirms th[e] bad faith that existed when the claim was denied.” (internal quotation marks omitted). The court held that whatever “misrepresentations or mischaracterizations” the letter allegedly contained, these allegations had no bearing on whether the policy provided coverage for the claimed property damage and therefore whether the claim was “fairly debatable.” The court held: “Plaintiff’s reliance on such post-denial communications by counsel for Defendants is deficient as a matter of law to support the claim for bad faith insurance denial.”

The Olirei decision is consistent with most case law nationwide holding that, typically, bad faith on the part of an insurer cannot be predicated on actions by an insurer after a coverage decision has been made.