RONNIE SELBST v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE COMMITTEE ON OPINIONS

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. 5140-03T3A-5140-03T3

RONNIE SELBST,

Plaintiff-Appellant,

v.

CERTAIN UNDERWRITERS AT

LLOYD'S LONDON,

Defendant-Respondent.

___________________________________________

 

Argued September 14, 2005 -- Decided

Before Judges Conley, Weissbard and Winkelstein.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-6128-02.

Jeffrey J. Brookner argued the cause for appellant (Wilentz, Goldman & Spitzer, attorneys; Frederick J. Dennehy, of counsel and on the brief; Mr. Brookner, on the brief).

James C. Orr argued the cause for respondent (Wilson, Elser, Moskowitz, Edelman & Dicker, attorneys; Mr. Orr, of counsel; William P. Krauss, of counsel and on the brief).

PER CURIAM

Plaintiff insured appeals a no cause jury verdict on her complaint against defendant insurer for failure to pay $1,000,000 total disability benefits. We affirm.

Plaintiff's complaint alleged two counts, breach of contract for refusing to pay her the benefits and bad faith in the handling of her claim. The pertinent facts are as follows.

In 1973, plaintiff, then 19 years old, graduated Phi Beta Kappa from the Massachusetts Institute of Technology with a degree in mathematics. Thereafter, she held a series of actuarial positions with health insurers and large accounting firms, ultimately operating her own actuarial consulting business, providing actuarial certifications for pension plans and offering expert testimony in matrimonial litigation. She married in 1982 and had two children, one born in 1983 and one born in 1984. Her husband was a teacher and a writer.

In 1985, a friend from college, then working as an option trader on the American Stock Exchange, introduced her to trading. She was immediately successful on a part-time basis and decided to give up her consulting practice to trade full time. Thus, she became an options-market trader on the floor of the American Stock Exchange.

It is uncontested that trading on the floor is a very complex and stressful occupation. It is also uncontested that plaintiff was a successful trader who was able to earn a considerable income from her success.

In 1993, plaintiff obtained the disability insurance policy at issue here. The policy included two separate types of coverage. The first coverage was for "temporary total disablement" in the amount of $10,000 per month for a maximum of sixty months. There is no dispute that plaintiff received all of the benefits available under this provision. The second coverage was for "permanent total disablement," which provided for a lump sum payment of $1,000,000 if the plaintiff was "permanently totally disabled" when the sixty months of $10,000 payments ended. "Permanently totally disabled" is defined in the policy as being:

disabled beyond hope of improvement and . . . wholly and permanently prevented for the remainder of his or her life, from engaging in his or her occupation or profession. . . .

Sometime in 1996, plaintiff's mental condition forced her to leave work. She submitted a claim for temporary disability and began receiving monthly disability payments under the policy, retroactive to July 1, 1996. After exhausting the temporary disability benefits, she sought the total disability benefits as of July 2, 2001. Plaintiff was examined by defendant's doctor on July 3, 2001. The benefits were not forthcoming. Efforts by plaintiff to obtain a resolution through the referee procedure were unavailing. She filed her complaint on June 20, 2002.

The circumstances leading up to all of this were the subject of much trial evidence. From that evidence, the jury could have found the following. After plaintiff and her husband purchased, in October 1992, property in Montclair to construct a house, disputes arose with both the architect and contractors, upsetting plaintiff. In addition, in 1993, plaintiff's husband deserted her and their two children without any explanation. Plaintiff later found out that her husband was gay and had moved in with his boyfriend. All of this added to the stress of her job. Her children, too, were adversely affected. Plaintiff sought psychiatric advice from Dr. Fredrick Kahn.

Near the end of 1995, plaintiff began to have headaches while at work and was getting depressed, either from the onset of early menopause or because her "resistance was down." This caused her to "sit down for a little while" at work. In early 1996, she began forgetting. Dr. Kahn prescribed Prozac. Over the next few months, she took more and more breaks during work which caused other traders to complain. She was having trouble sleeping, felt isolated and claimed it was harder and harder to motivate herself to continue trading. In April 1996, Dr. Kahn recommended that she "take a break" from trading for three to six months.

Around that time, the non-job-related stresses confronting plaintiff largely had resolved. By April 1996, her divorce from her husband was concluded and the issues with plaintiff's children had greatly decreased. As acknowledged by her, the problems facing her for the past several years "were behind me."

Within about a month of leaving the trading floor in April 1996, plaintiff leased her seat on the American Stock Exchange. She did volunteer work for her synagogue and devoted more time to her two children. She considered becoming a rabbi and briefly attended rabbinical college in Philadelphia toward that goal. And too, prior to becoming a full-time options-margin trader on the American Stock Exchange, plaintiff had founded a limited partnership called Prako Investments engaged in options trading. After leaving the trading floor, she continued as the general partner of this partnership. Through Prako, she purchased and leased seats on the Philadelphia Stock Exchange and the Pacific Stock Exchange.

In December 2000, plaintiff took the LSAT examination, scoring 171 out of 180, placing her in the ninety-eight percentile of all scores. In November 2001, she applied to Columbia University Law School, New York University School of Law, Rutgers University School of Law-Newark, Benjamin N. Cardozo School of Law and Seton Hall University School of Law. She was admitted into all five schools. Accompanying each of her five law school applications was a "Personal Statement." The statement explained that options trading was "tantamount to being a professional gambler" and "one of the very few jobs for which I can not find any redeeming social value." She explained that she came to despise the person she had become "in order to succeed on the Floor":

The prospect of forcing this self-transformation on a daily basis became increasingly arduous and, in April 1996, I stopped trading and became more active in my synagogue and other non-profit organizations. As I came to recognize the level of personal satisfaction that I can achieve from serving my community, it became clear that I could not go back to the Floor.

On cross-examination, plaintiff admitted that by November 2001, when the statement was written, her failure to return to options trading was not because she could not go back, it was because she did not want to go back. And, indeed, plaintiff never returned to the floor.

At the outset of trial, plaintiff's counsel made the following in limine motion:

I have an obligation, Your Honor, certainly to prove what she did to qualify for permanent disability . . . I would be less than competent if I didn't put a doctor on the stand to say that she was disabled. But it seems to me once I do that and I prove -- if I prove the [alleged bad faith claims handling], that they breached the contract by never sending her to a doctor, it's my position that by doing that they don't get a chance now to come and ask this jury to determine if she's permanently disabled by putting medical evidence on the stand that she in fact is not disabled.

It seems to me if they breach their contract and not follow its terms and never within a reasonable time come up with a doctor to examine her and don't follow the contract, they just can't sit back and say, okay, sue us, and once you sue we take it out of the realm of medical referee and vocational referee, we hand it to the jury and they decide whether you're disabled.

To me that's prejudicial, it's unfair, gives them an unfair bite at the apple and there's no penalty for their bad faith in breach of contract.

In essence, plaintiff argued that if she proved her bad faith claims handling claim, she was entitled to judgment, without a jury determining whether her alleged permanent disability satisfied the terms of the policy.

The trial judge rejected this. In doing so, he said:

Look, I -- I can analogize the situation to cases, first party benefit claims that I see all the time, you know, whether it be PIP benefit claims or they are UIM claims or UM claims that are ignored by the carrier or a demand is made for arbitration, they don't . . . sit back. We wind up with orders to show cause and they bring it in to compel the filing of an arbitration. It isn't an order to show cause to pay them your policy limits because you didn't respond in the 30 days you were supposed to. You don't automatically get the policy limits just because there's a breach. You still have to prove you're entitled to them if there was damages as a result of that breach. I still don't see how you get past having to prove your case that you were entitled to the benefits that were . . . part of a contract. If we don't call it -- as far as a breach, we at least have to call it the damages phase and you have to prove your damages.

I -- I'm satisfied that you still have to meet the fact that you're entitled to the proceeds of that policy.

Counsel responded:

[PLAINTIFF'S COUNSEL]: Well, Your Honor, I disagree obviously. I just wonder then is -- is the remedy then in this case does she simply get the chance to go back and have the referee agreement --

[DEFENDANT'S COUNSEL]: There's not a specific performance claim here. This is a claim for --

THE COURT: There's a claim for damages.

. . . .

THE COURT: I don't know -- you're right, there wasn't a claim for specific performance that I know of --

[PLAINTIFF'S COUNSEL]: That's fine, Judge.

THE COURT: -- to compel the -- I mean that's normally what happens on a -- on a UM or a UIM. I get an order to show cause to compel the insurance carrier to name their arbitrator so that the UIM or . . . UM can go forward . . . and that's the normal remedy. This wasn't an order to show cause to compel that situation.

[PLAINTIFF'S COUNSEL]: No, Your Honor. No, we want -- we want to go forward . . . .

[Emphasis added.]

For its part, the insurer moved in limine, to preclude plaintiff's damages evidence in connection with her bad faith claims handling count, i.e., her lay opinion that she was forced to sell her home at a loss. Plaintiff's counsel recognized that "we have a problem . . . I don't have any expert testimony on that issue." The judge ruled:

I'm satisfied it's inappropriate for a lay witness to testify as to the value or market conditions of . . . real estate. I -- and particularly if we're gonna need to speculate as to what effect 9/11 had on a real estate market in general at a particular time or the amount of that would leave the jury totally speculated as to what the measure of damages was under those circumstances.

As a result, plaintiff had no provable damages on the bad faith claims handling count. Because the trial judge rejected counsel's efforts to, nonetheless, present the bad faith evidence in the context of the breach of contract count, the only issue presented to the jury was whether plaintiff, at the time of her claim, met the definition of "permanently totally disabled" under the policy. The jury concluded she had not.

On appeal, plaintiff raises the following contentions:

POINT I: THE TRIAL COURT ERRED BY PERMITTING LLOYD'S TO CIRCUMVENT THE POLICY'S REFEREE PROVISION BY LYING AND PROCRASTINATING.

A. LLOYD'S IS ESTOPPED FROM ENFORCING THE "PERMANENT TOTAL DISABILITY" PROVISION BECAUSE IT PURPORTED TO PROCESS MS. SELBST'S CLAIMS WHILE EXERCISING BAD FAITH.

B. BY DELAYING, LLOYD'S PREVENTED A PROPER EVALUATION OF MS. SELBST'S MENTAL CONDITION AS OF JULY 2, 2001; THE ONLY APPROPRIATE REMEDY FOR THIS SPOLIATION IS A CONCLUSIVE PRESUMPTION OF A TOTAL PERMANENT DISABLEMENT.

POINT II: ALTERNATIVELY, THE TRIAL COURT ERRED BY SUMMARILY DENYING MS. SELBST'S REQUEST THAT THE MATTER BE RESOLVED VIA THE REFEREE PROCEDURE, AS MANDATED BY THE POLICY.

POINT III: THE TRIAL COURT ERRED BY ENFORCING A DEFINITION OF "PERMANENT" THAT IS CONTRARY TO THE TERM'S COMMONLY UNDERSTOOD MEANING, AND THAT LARGELY NULLIFIES COVERAGE.

A. INSURANCE POLICIES CANNOT DEFINE TERMS IN A WAY THAT CONTRADICTS THEIR COMMONLY UNDERSTOOD MEANING.

B. THE POLICY'S "BEYOND HOPE" LANGUAGE, IF MISAPPLIED TO THE CIRCUMSTANCES OF THIS COVERAGE, SO VITIATES COVERAGE AS TO BE UNENFORCEABLE.

POINT IV: THE TRIAL COURT ERRED BY DISMISSING MS. SELBST'S CONSUMER-FRAUD CLAIMS.

A. DECEPTIVE ACTS IN CONNECTION WITH THE PROCESSING OF INSURANCE CLAIMS CONSTITUTE UNLAWFUL PRACTICES UNDER THE CFA.

B. INSURANCE REGULATIONS DO NOT PREEMPT THE APPLICATION OF THE CFA TO THIS CASE.

We have considered these contentions in light of the particular procedural posture of this case, the record, and the applicable law. We are convinced they are without merit.

As to plaintiff's estoppel claims in point I, "[i]n determining whether an insurer should be estopped from asserting . . . defenses under policies because of prejudice to the insured, the test is whether the insurer's acts or omissions 'constituted a material encroachment upon the rights of an insured to protect itself . . . .'" Reliance Ins. Co. v. Armstrong World Indus., Inc., 292 N.J. Super. 365, 375 (App. Div. 1996) (quoting Griggs v. Bertram, 88 N.J. 347, 359 (1982)).

In Reliance, supra, plaintiff, a comprehensive general liability insurer, brought action against the insured, seeking declaratory judgment that coverage for costs of remediation of environmental pollution to groundwater beneath the insured's site was excluded from its policy, and thus, it had no duty to defend the insured in the underlying environmental action. There, upon receiving the underlying complaint, the insured had informed the insurer of the lawsuit and advised it "to 'coordinate . . . the defense of this lawsuit.'" Id. at 374. The insurer shortly thereafter wrote a letter to the insured, stating that "it would 'notify [insured] within a reasonable time of [its] decision in this matter.'" Ibid. The insurer did not undertake the defense but, rather, filed a declaratory action based on policy exclusions.

Although we ultimately rejected the insurer's contentions of noncoverage, we addressed the insured's estoppel claim. In that respect, the insured argued that "[the insurer] lost the right to rely upon any coverage exclusions because it failed to make a timely coverage determination and to communicate that decision to [insured] in a reasonable manner." Id. at 375. We disagreed noting that insurer took no action to prejudice the insured. Id. at 376. We reasoned that insurer "did not investigate the site or 'assume the defense' of the insured[,]" that the insured "engaged counsel on its own behalf" from the start of the litigation, and that there was "no indication that [the insurer] caused [the insured] to suffer any inability to direct its own defense and investigate the matter." Ibid. We held that:

[D]espite the significant time interval, [the insurer's] failure to more timely notify [the insured] of its decision as to the applicability of the policy exclusions may only act as an estoppel if in fact [the insured] can show actual prejudice. (Citations omitted). Inasmuch as [the insured] had itself secured the services of private counsel and ultimately reached a settlement, we see no evidence that [the insurer's] actions prejudiced [the insured] in the settled litigation.

[Ibid.]

Plaintiff here argues that prejudice is automatically "presumed" where an insurer receives a timely claim for a policy benefit, has a contractual procedure for resolving the claim but does not follow it, forcing the insured to file suit. She relies upon Griggs v. Bertram, supra, 88 N.J. at 362-63.

The Court in Griggs held that prejudice that will justify an estoppel is presumed where "there has been a long lapse of time without any indication by the insurance carrier of a loss or rejection of coverage, during which the insured justifiably expects to be protected by the carrier and cannot, except at the risk of forfeiting coverage, act for itself under the policy . . . ." Id. at 362 (emphasis added). However, it noted "[t]here may be other situations . . . which may not call for the conclusive imputation of prejudice. . . . [I]t may be appropriate in such other contexts not to impute conclusive prejudice but to impose a rebuttable presumption of prejudice which the insurer must disprove in order to overcome the bar of estoppel." Id. at 362 n.3. Further, "a material encroachment upon the rights of an insured" by the insurer is a prerequisite to the imputation of prejudice. Id. at 359. Hence, "[t]he imputation of prejudice is not an absolute rule." Am. Handling Equip., Inc. v. T.C. Moffatt & Co., 184 N.J. Super. 131, 141 (App. Div. 1982).

In the present matter, defendant's failure to timely utilize the referee provision of the contract did not, in any way, prejudice plaintiff. First, plaintiff knew by the time of the July 3, 2001, medical examination and resulting report what the insurer's position would be, i.e., denial of coverage. Indeed, by letter dated October 12, 2001, counsel served defendant with "a demand for immediate payment of the $1,000,000 . . . along with interest thereon from July 1, 2001 to date." Second, there is no evidence of "a material encroachment upon" her rights. She had retained counsel, and had her own medical examinations along with that of the insurer's doctor. Furthermore, unlike Griggs, this case does not involve any obligation to defend the insured from possible claims and delay in notifying insured of noncoverage which could encroach upon the insured's rights in such a defense. Simply put, defendant's failure to embark on the referee remedy cannot be realistically viewed as a "material" or "substantial" invasion of plaintiff's ability to act in her own interest under the policy. Compare Price v. N.J. Mfrs. Ins. Co., 182 N.J. 519, 526 (2005) ("It was not reasonable for NJM to sit back, request and receive various documents over a three and one-half year period, and then deny plaintiff's claim because he failed to file a complaint in Superior Court or request arbitration prior to the running of the six-year statute of limitations.").

As to plaintiff's contention that defendant's claims handling resulted in spoliation of evidence, this argument was not presented to the trial court and does not warrant review on appeal. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Nevertheless, the argument lacks merit in light of the fact that plaintiff underwent a psychiatric examination with defendant's expert on July 3, 2001, one day after the thirty-day procedure set forth under the referee provision. Moreover, she was, and had been for some time, treated by her own psychiatrist who could have, and did during the trial, provide evidence as to her then condition. We, therefore, reject point I.

We summarily reject point II. At no point did plaintiff seek to enforce the alternative resolution provision set forth in her policy. Indeed, as we understand counsel's responses to the judge's observations concerning the alternative contractual remedy provision, previously set forth, plaintiff did not want such remedy.

As to point III, plaintiff argues that the trial judge erroneously instructed the jury to apply the policy's definition of "permanent total disablement" because (1) that definition "deviate[s] from the commonly understood meaning of the word permanent" and (2) is impermissibly restrictive. As to the first, plaintiff asserts that permanent total disability ordinarily means "to be in a state of indefinite continuance," Bowler v. Fid. & Cas. Co. of N.Y., 53 N.J. 313, 324 (1969). But even assuming that to be the term's ordinary meaning, we do not see a substantial difference between Bowler's "state of indefinite continuance" and the policy's "beyond hope of improvement." As the Court in Bowler elaborated, such a state is one where "recovery, even if such a possibility exists, is so far removed that the end of the disability cannot be foreseen." Id. at 324. This is not much different from "beyond hope of improvement." Even if different, plaintiff cites no authority that would preclude this insurer from defining such disability, within the confines of its million dollar policy, differently. Neither does she provide any authority precluding the insurer from doing so.

To the extent plaintiff contends the policy definition is ambiguous, requiring an ambiguity charge to the jury, we disagree. "Beyond hope of improvement" is elaborated in the policy as meaning "wholly and permanently prevented for the remainder of [the insured's] life, from engaging in his or her occupation. . . . " This is not a standard that the jurors could not fathom. And, too, since we reject plaintiff's contention that the term "total permanent disablement" on the declaration sheet, legally, means something different from the definition of that term in the policy, we reject any notion that an ambiguity arises therefrom.

 
Finally, since plaintiff's complaint did not allege a Consumer Fraud Act violation, we decline to address the contentions in point IV.

Affirmed.

In this respect, the bad faith was alleged to arise from the failure of the insurer to comply with the "referee" provision of the policy. That provision called for "two independent referees, to be mutually agreed upon" and further provided that "[t]he decision of the two referees will be binding . . . ." There is no dispute that this procedural resolution of the claim was not complied with. There is dispute, however, as to the cause for that.

(continued)

(continued)

17

A-5140-03T3

September 21, 2005