Background
Burton Pickett, an owner-operator trucker from Branchville, New Jersey, lost his tractor-trailer in a highway crash in Ohio on January 13, 1987. The carrier he hauled for gave him until April 13 to replace the truck without losing his seniority, which gave him first choice of the most profitable runs. His $30,000 physical-damage policy was written by a Lloyd’s syndicate through a U.S. agent.
He reported the claim the next day, and his broker asked the insurer’s agent to expedite it because he was out of work. What followed was, in the Court’s words, “an almost comic mixup.” The loss information was mailed to an adjuster who apparently did not exist. A different claims firm then spent a month investigating liability on a policy that covered only physical damage. The proof-of-loss form, for the full $29,000 after the deductible, reached Pickett on April 19, six days after he lost his seniority. When he called the insurer’s agent, he was asked where he got her phone number. The check was then made out to the adjuster instead of to Pickett and his lender. Pickett received his share about nine months after the crash.
A jury awarded him $70,000 for his lost income and lost seniority. The Appellate Division affirmed.
What the court held
The Supreme Court affirmed and set out New Jersey’s framework for first-party bad faith.
There is a duty, and it sounds in contract. Every contract carries an implied duty of good faith and fair dealing. The Court held that an insurer owes that duty to its own policyholder in processing a first-party claim. It treated the claim as “sounding more in contract than in tort.”
The “fairly debatable” standard. The Court rejected both a purely subjective, ill-will test and a mere-negligence test. “If a claim is ‘fairly debatable,’ no liability in tort will arise.” For a denial, bad faith requires showing that there was no reasonable basis for denying benefits and that the insurer knew or recklessly disregarded that. The Court added that a claimant who could not have won summary judgment on the underlying claim as a matter of law cannot pursue a bad faith claim over the denial. For a delay in paying a valid claim, the test is essentially the same: the conduct must be unreasonable, and the insurer must know it or recklessly disregard it. Negligence or mistake, such as a claim lost in a computer system, is not enough.
Damages. Because the claim sounds in contract, the insurer is liable for the natural and probable consequences of its breach that it knew of or should reasonably have foreseen. That can exceed the policy limit. Absent egregious circumstances, there is no recovery for emotional distress or punitive damages. An insurer can still be liable for an independent tort, and punitive damages require something beyond the bad-faith breach itself.
Applying the standard. The Court found more than “mere mishandling.” The insurer knew there was no reason to withhold payment, and the jury could see “an inescapable aura of bureaucratic indifference.” The release printed on the proof-of-loss form did not bar Pickett’s claim, because he had to sign it to get paid at all and much of the delay came afterward.
Why it matters
Pickett is the controlling New Jersey test for a beneficiary who says a life insurer denied or sat on a claim in bad faith. Two features matter most in life insurance disputes:
- Coverage usually comes first. Because a fairly debatable claim cannot support bad faith, a beneficiary generally has to show the right to the death benefit was clear. In Hawkins v. Globe Life (D.N.J. 2015), a life insurance case, the federal court declined to rule on the bad faith count for that reason, because the beneficiary had not first moved for summary judgment on coverage.
- Delay claims are distinct. Pickett itself involved an undisputed claim that was simply not paid. An insurer that agrees a death claim is payable but lets it sit, without a valid reason, may face liability for foreseeable losses caused by the delay, beyond the face amount and statutory interest.
Before relying on Pickett, a beneficiary should know that New Jersey’s 2021 Insurance Fair Conduct Act does not apply to life claims; it covers uninsured and underinsured motorist claims only. See our New Jersey page. For Pennsylvania’s statutory approach, compare Rancosky v. Washington National. Our guide to delayed claims covers timing rules generally.
Read the opinion
Pickett v. Lloyd’s, 131 N.J. 457, 621 A.2d 445 (1993) (CourtListener).
Not legal advice. This page summarizes general rules and the specific statutes cited. Your policy's wording, the state whose law applies, and whether the coverage came through an employer can all change the result. See the disclaimer and editorial policy.