September 30, 2016

Insurance Bad Faith is No Longer Part of the "Entire Controversy"

Those familiar with New Jersey procedural law are also familiar with the "entire controversy" doctrine.  The entire controversy is codified in a court rule, specifically, R.4:30A, and provides in essence that the non-joinder of claims or parties required to be joined by the doctrine shall result in the preclusion of omitted claims.  The purposes of the entire controversy doctrine are threefold:  (1) the need for complete and final disposition through the avoidance of piecemeal decisions; (2) fairness to parties to the action and those with a material interest in the action; and (3) efficiency and the avoidance of waste and the reduction of delay.  See, e.g., Ditrolio v. Antiles, 142 N.J. 253, 662 A.2d 494, 1995 N.J. LEXIS 534 (N.J. 1995).  The doctrine has spawned numerous cases in which the courts have wrestled with whether or not claims arise from related facts or the same transaction or series of transactions.  It is generally the core set of facts that provides the link between distinct claims against the same or different parties and triggers the requirement that they be determined in one proceeding.

In the context of insurance bad faith claims, particularly in the context of cases in which UM/UIM benefits are sought, insureds have been joining bad faith claims against insurance carriers with their underlying breach of contract claims, such as in the case of UM/UIM claims, because it was believed that such a claim could be waived under the entire controversy doctrine if not joined with the breach of contract action.  The Appellate Division spawned a line of cases beginning with Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 454, 951 A.2d 1041, 1044, 2008 N.J. Super. LEXIS 141, (App. Div. 2008) to deal with the issue.  Although the Taddei court expressly declined to decide whether the entire controversy doctrine mandated inclusion of both the bad faith and breach of contract claims in a plaintiff's complaint, the Appellate Division line of cases did provide guidance for how to balance the equities, and directed that the underlying UM/UIM claim could be severed from the bad faith claim, with the latter being held in abeyance until conclusion of the former.

The Supreme Court amended the rule, effective September 1, 2016, providing a specific mandate that bad faith claims are not subject to the entire controversy doctrine.  The new rule reads as follows, with the highlighted/bolded language being the revision:

4:30A. Entire Controversy Doctrine

Non-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims to the extent required by the entire controversy doctrine, except as otherwise provided by R. 4:64-5 (foreclosure actions) and R. 4:67-4(a) (leave required for counterclaims or cross-claims in summary actions).  Claims of bad faith, which are asserted against an insurer after an underlying uninsured motorist/underinsured motorist claim is resolved in a Superior Court action, are not precluded by the entire controversy doctrine.

This means that plaintiffs no longer have to join these claims in one suit.  It does not, however, mean that plaintiffs will refrain from filing bad faith claims if they prove they are entitled to UM/UIM benefits but are unhappy with the investigative process or outcome of the underlying claim.

Other expansive changes to the rules can be found at