Introduction

With the exception of the New Jersey Supreme Court, New Jersey state courts, unlike those in other jurisdictions, largely eschew issuing published decision, meaning most decisions are “unpublished” and, therefore, not binding upon any other court. These decisions, however, are not entirely valueless as they may be cited as secondary authority and often either presage future developments in the law or reinforce existing principles.

In keeping with this general practice, New Jersey courts in recent years have issued few precedential decisions involving insurance law. This past year was no different. Nonetheless, when viewed together with the decisions issued by the federal courts in New Jersey, the “unpublished” state court decisions issued in 2025 have provided useful guidance with respect to several issues that are frequently contested in insurance coverage litigations.

New Jersey Courts Reiterate That Insureds Face a High Bar to Establishing an Insurer’s Bad Faith

In 2025, New Jersey courts had multiple opportunities to reiterate that the bar to maintaining a bad faith claim based on an insurer’s denial of benefits or inattention to processing a valid claim remains high.

Under New Jersey law, a plaintiff must show two elements to establish a claim for bad faith: “(1) the insurer lacked a ‘fairly debatable’ reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim” (Ketzner v John Hancock Mut. Life Ins. Co., 118 F. App’x 594, 599 (3d Cir. 2004) (citing Pickett v Lloyds, 621 A.2d 445, 454 (N.J. 1993))). To satisfy the first prong, “a plaintiff must establish as a matter of law a right to summary judgment on the substantive claim; a plaintiff who cannot do so is not entitled to assert a claim for bad faith—including at the motion to dismiss stage” (Vincent Cusumano Architect, P.C. v Berkshire Hathaway Direct Ins. Co., No 23-22970, 2025 WL 957699, at *7 (D.N.J. Mar. 29, 2025)).

Applying the “fairly debatable” standard, the District of New Jersey dismissed an alleged bad faith claim at the motion to dismiss stage in Vincent Cusumano Architect. There, the parties disputed the availability of coverage under a professional liability insurance policy for claims involving the plaintiffs’ prior work.

Notably, there was a three-month gap in coverage between the expiration of the plaintiffs’ prior policy and the commencement of the policy issued by the defendant. The plaintiff argued, among other things, that the defendant “knowingly issued an insurance policy with a three-month gap to deprive Plaintiffs of coverage for claims stemming from prior work, and such conduct is sufficient to establish bad faith” (id at *7).

The trial court rejected the plaintiffs’ argument that the “fairly debatable” standard did not apply to the claim because the defendant’s alleged bad faith related to its decision to issue an insurance policy with a three-month gap in coverage. As the plaintiffs acknowledged their bad faith claim relied on the same set of facts as their breach of contract claim, the trial court determined the plaintiffs failed to plead that the defendant lacked a reasonable basis for denying the claim because they conceded that the defendant’s insurance policy “conditioned coverage for claims arising from prior work and [that] they failed to meet at least one of those conditions” (id).

Similarly, in Johnson v Hanover Ins. Co., No 23-1294, 2025 WL 1527444 (D.N.J. May 29, 2025), the trial court applied the “fairly debatable” standard to dismiss a bad faith claim at the summary judgment stage in connection with a homeowner’s insurance dispute. The parties in Johnson agreed that the plaintiffs’ home sustained damage during a hailstorm but disagreed over whether the roof sustained any covered damage. The plaintiffs argued the defendant “acted in bad faith by refusing to submit their dispute over the roof damage to appraisal” (id at *6).

Because the defendant contended the roof did not sustain any damage, the trial court found that the defendant had raised a coverage issue that was not subject to appraisal. It thus concluded that the rejection of the plaintiffs’ appraisal demand “[a]t the very least… was ‘fairly debatable,’ precluding any finding of bad faith” (id at *6). Additionally, the plaintiffs argued the defendant acted in bad faith by initially applying the wrong deductible before later correcting itself. The trial court also dismissed this legal theory as a matter of law, concluding that the plaintiffs failed to “offer… evidence suggesting that the initial error was anything more than a clerical mistake” (id at *7). Such evidence, the court said, was necessary to show wrongful intent or reckless disregard.

New Jersey courts apply the same analytical framework when the alleged bad faith concerns the inattention to processing an uncontested claim rather than the denial of benefits. “In a delay case, bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay” (Shamrock Techs., Inc. v Ill. Union Ins. Co., No 25-00105, 2025 WL 3670535, at *4 (D.N.J. Dec. 17, 2025) (cleaned up)). This standard is “essentially the same” as the “fairly debatable” standard (id) (quoting Onex Credit Partners, LLC v Atrium 5, Ltd., No 13-5629, 2014 WL 4798578, at *8 (D.N.J. Sept. 26, 2014)).

In Shamrock Technologies, the trial court dismissed the plaintiff’s bad faith claim at the pleading stage, concluding that “Plaintiff’s conclusory allegations that Defendant did not promptly address Shamrock’s claim fails to state a claim upon which relief can be granted” (id at *5).

More than 30 years after the New Jersey Supreme Court first recognised a cause of action for bad faith in Pickett, it remains the case that an insurer only needs to identify “the existence of material issues of disputed fact in the underlying contract dispute” to satisfy the “fairly debatable” standard (Vincent Cusumano Architect, 2025 WL 957699, at *7 n.6 (citing Snowden v Standard Ins. Co., No 23-2493, 2024 WL 1154471, at *3 n.2 (D.N.J. Mar. 18, 2024))).

Replacement Cost Estimates Are Insufficient on Their Own To Establish Actual Cash Value

In recent years, insureds and insurers have clashed over the type of evidence necessary to prove actual cash value (ACV). Often, insureds will attempt to rely solely on their replacement cost (RC) estimates, arguing ACV can be derived therefrom. Two federal courts confirmed that these estimates on their own are plainly insufficient to raise a triable issue as to damages (see Kimmel v Mass. Bay Ins. Co., 787 F. Supp. 3d 18 (D.N.J. 2025); Johnson v Hanover Ins. Co., No 23-1294, 2025 WL 1527444 (D.N.J. May 29, 2025)).

In Kimmel, the insured sued his homeowner’s insurer, seeking coverage for structural damage to his house. The insured attributed the structural damage to vibrations and soil displacement caused by a recently fallen tree, while the insurer instead found the claim involved pre-existing damage, which was the result of long-term settlement and other unrelated factors.

Following the close of discovery, the insurer moved for summary judgment, arguing that the insured was limited to recovering the ACV of the damage because he did not repair or replace the damaged property, as required by the policy to recover the RC of the damage, and that he failed to produce evidence to establish the ACV of the damage. In response, the insured argued “that his submission of replacement cost estimates is sufficient and permits a jury to determine ACV under the broad evidence rule” (Kimmel, 787 F. Supp. 3d at 21).

The trial court squarely rejected this argument, explaining “a plaintiff cannot simply present a replacement cost figure and expect a factfinder to somehow extrapolate ACV without more” (id at 24). Instead, the trial court said that an insured “must provide a developed evidentiary foundation—such as depreciation calculations, market value comparisons, or other reliable valuation metrics—from which ACV may reasonably be determined under the broad evidence rule” (id).

A similar result was reached in Johnson. As discussed above, the parties in that case agreed that the plaintiffs’ home sustained damage during a hailstorm but disagreed over whether the roof sustained any covered damage. As in Kimmel, the insurer moved for summary judgment, arguing that the insureds were limited to recovering the ACV of the roof damage (if any covered damage even existed) and that they failed to produce evidence to establish that amount. The trial court agreed, observing “courts in [the District of New Jersey] have repeatedly held that plaintiffs cannot proceed to trial on breach of contract claims armed only with evidence of the RC-based value of their alleged loss” (Johnson, 2025 WL 1527444, at *5). The insureds’ failure to adduce evidence of the ACV of the roof damage was particularly egregious as the RC estimate prepared by their roofer “include[d] columns for calculating ACV, including depreciation, [but] the roof[er] neither identified any depreciation nor assigned an ACV to the claimed damage” (id).

In addition, the trial court rejected the insureds’ reliance on the equitable doctrine of impossibility of performance to argue that they were entitled to ACV because the insurer’s refusal to pay RC upfront prevented them from completing the repairs. The trial court found the insureds’ position was based on circular reasoning, explaining that “[a]s a matter of logic, a party cannot be excused from meeting a condition precedent simply because they have not received the benefit that depends on satisfying it” (id). And, in any event, the court noted the insureds failed to present any evidence of “financial hardship that would have made repairs impossible without those funds [the ACV of the roof damage]” (id).

These decisions emphasise the need to develop evidence during discovery regarding ACV as well as RC. Absent evidence of both measures, an insured’s claim might never reach a jury.

The New Jersey Appellate Division Clarifies a Risk Purchasing Group’s Standing To Bring Suit on Behalf of One of Its Members

In WCPP Risk Purchasing Group, Inc. v Lexington Insurance Co., No A-0928-23, 2025 WL 1672272 (N.J. Super. Ct. App. Div. June 13, 2025), the Appellate Division addressed whether a risk purchasing group (RPG) has standing to bring suit on behalf of its members. “In the context of insurance law, a “‘[p]urchasing group’ means any group which: has as one of its purposes the purchase of liability insurance on a group basis; purchases such insurance only for its group members and only to cover their similar or related liability exposure; is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar or common business, trade, product, services, premises or operations; and is domiciled in this or any other state” (id at *5) (quoting N.J.S.A. 17:47A-2).

The plaintiff in WCPP was an RPG that purchased commercial general liability insurance coverage from Lexington on behalf of a group engaged in commercial real estate. One of the members of the RPG, Bleznak Organization, purchased insurance coverage on behalf of an apartment complex known as the Village of Stoney Run. After Stoney Run was sued for wrongful death by the estate of one of its former tenants, Lexington rejected the tender of coverage on its behalf. The RPG subsequently sued Lexington, arguing it had a duty to defend and indemnify Stoney Run.

On appeal, Lexington challenged the trial court’s finding that the RPG had standing to bring suit on behalf of Stoney Run. Lexington argued that “the record contained no evidence that [the RPG] was a designated agent of Bleznak or Stoney Run, that Bleznak or Stoney Run authorized [the RPG] to initiate an action, or that [the RPG] had a financial stake in the underlying litigation” (id at *4).

In affirming the trial court’s finding that the RPG had standing, the Appellate Division explained that “New Jersey law does not recognize any distinction between the concepts of standing and real party in interest” (id). Under New Jersey’s real party in interest rule, “a ‘real party in interest’ includes ‘a party with whom or in whose name a contract has been made for the benefit of another [and that party] may sue in the fiduciary’s own name without joining the person for whose benefit the suit is brought” (id) (quoting N.J. Ct. R. 4:26-1).

While recognising “[t]here is little caselaw in New Jersey addressing the relationship between an RPG and its members for purposes of establishing standing”, the court found that the RPG was a real party in interest under the particular facts presented and therefore had standing to sue Lexington on behalf of Stoney Run (id at *6). Specifically, the court reasoned that the RSG was a real party in interest because “Bleznak is a member of the RPG, and Bleznak is an agent on behalf of its affiliate, Stoney Run” (id).

New Jersey Federal Courts Enforce Arbitration Clauses

Another recent trend involves insureds and insurers alike seeking to resolve their disputes through arbitration rather than litigation. New Jersey courts in 2025 have had several occasions to address the enforceability of arbitration provisions in insurance policies in a variety of contexts.

In County of Middlesex, New Jersey v Underwriters at Lloyds, London, No 25-1390, 2025 WL 2645706 (D.N.J. Sept. 15, 2025), the district court applied the Federal Arbitration Act to compel arbitration pursuant to an arbitration clause that permitted either party to demand arbitration when they were “unable to agree as to… the actual amount of indemnity to be paid” (id at *4).

Applying state-law principles to determine that a valid agreement to arbitrate existed, the district court found that the arbitration clause was clear and unambiguous for several reasons: “(1) the clause is clearly written at the top of the ‘General Policy Conditions’ section; (2) the language warns the reader that there are additional terms and conditions of the agreement to arbitrate, including how the arbitrators will be selected, how the arbitrators and/or umpire will calculate the indemnity due, and the fact the arbitration decision will be binding; (3) the language notifies the reader which matters shall be arbitrated, including disputes regarding indemnity payments; and (4) the greater Policy demonstrates how other provisions interact with the arbitration clause” (id at *4).

The trial court then found that the parties dispute over reimbursement of defence and indemnity payments fell within the scope of that agreement. In so holding, the trial court reiterated that under the Federal Arbitration Act “there is a presumption of arbitrability” (id). The trial court was not persuaded by the insured’s argument that the arbitration clause was limited to first-party claims and did not apply to third-party claims, reasoning that the clause applied to all indemnity disputes because “[t]here is no language in the clause which articulates that specific types of claims for indemnity are exempt from the clause” (id at *5).

Similarly, in Houston Casualty Co. v Kinsale Insurance Co., No 24-7866, 2025 WL 2779139 (D.N.J. Sept. 30, 2025), the trial court applied the doctrine of equitable estoppel to compel arbitration. There, the coverage dispute arose out of a workplace accident on a construction site. Kinsale issued general liability coverage to the subcontractor of the injured worker while HCC issued coverage to the general contractor.

After Kinsale refused to accept the tender of coverage on behalf of, among others, the general contractor, HCC sued Kinsale for a declaration regarding its coverage obligations. Kinsale then sought to compel arbitration, “arguing that HCC should be bound to the Kinsale Policy’s arbitration clause under a theory of equitable estoppel” (id at *3). In response, HCC argued equitable estoppel was inapplicable because “it brought suit under its independent equitable right of contribution, not as a subrogree”, and was “seeking indirect, rather than direct, benefits under the Kinsale Policy” (id) (cleaned up).

Applying the “knowingly exploits” theory of equitable estoppel under which a non-signatory is prevented “from embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful”, the trial court determined that “all of HCC’s claims seek to enforce the Kinsale Policy or assert claims based on the Kinsale Policy” (id at *5). As part of its analysis, the trial court also considered and rejected HCC’s argument that it was “not receiving a direct benefit under the Kinsale Policy because it pleads a contribution claim, rather than a subrogation claim” (id). While recognising that not all courts have adopted the “direct benefits” requirement, the trial court nonetheless found that HCC’s argument would fail even if the “direct benefits” requirement applied as HCC was bringing a subrogation claim, at least with respect to the excess coverage provided by Kinsale.

These decisions are a reminder that, under federal law, any doubts regarding arbitrability will be decided in favour of arbitration.

New Jersey Court Rejects Attempt To Limit the Rule Announced in Statewide Insurance Fund v Star Insurance Co., 289 A.3d 448 (N.J. 2023)

In National Union Fire Insurance Company of Pittsburgh, Pa. v Somerset County Joint Insurance Fund, No 24-916, 2025 WL 36358 (D.N.J. Jan. 6, 2025), the District of New Jersey addressed an issue of first impression concerning a priority-of-coverage dispute between a public entity joint insurance fund and a commercial general liability insurance company. At issue was whether the rule announced in Statewide Insurance Fund v Star Insurance Co., 289 A.3d 448 (N.J. 2023) applies when a joint insurance fund also maintains reinsurance.

After analysing the joint insurance fund enabling statute, the New Jersey Supreme Court held in Statewide Insurance Fund that a joint insurance fund provides “self-insurance” to public entities and that “‘[s]elf-insurance’ is not insurance” (289 A.3d at 449). The court thus found that this “self-insurance” coverage does not qualify as “insurance” when evaluating the availability of coverage under an “other insurance” provision.

In Somerset County Joint Insurance Fund, the joint insurance fund sought to preclude National Union from obtaining documents and communications related to its reinsurance policy. Seeking to distinguish Statewide Insurance Fund, National Union intended to argue that the Somerset County Joint Insurance Fund maintained reinsurance coverage pursuant to which it was only responsible for the first USD250,000 in coverage. According to National Union, this meant that the remaining limit of coverage constituted “insurance” rather than “self-insurance”.

Rejecting this argument, the federal court held that “[f]our related and unambiguous statutory provisions demonstrate that even when a joint insurance fund obtains a reinsurance contract to reallocate risk that its members would otherwise directly bear, the fund does not convert to providing ‘insurance,’ but continues to be a platform for participating members to ‘self-insure’” (id at *4). Because it found that the existence of reinsurance did not alter the analysis under Statewide Insurance Fund, the court held that the discovery sought by National Union regarding the reinsurance contract was not relevant.

Choice of Law Applicable to an Insurance Policy

In De Chacon v Caesars Entertainment Corp., No A-2376-023, 2025 WL 3640133 (N.J. Super. Ct. App. Div. Dec. 16, 2025), the Appellate Division had occasion to consider what state’s law applied to a claim arising out of an assault that took place at a New Jersey casino. The assailant, a New York resident, was insured under a homeowner’s insurance policy, which was issued to his parents, who also were New York residents, and covered property located in New York.

Contending that New York law applied, the insurer denied coverage on the basis that the assailant pled guilty to assault. “Under New York law, an insured who pleaded guilty to assault is not entitled to insurance coverage caused by the assault because the issue of his intent to inflict bodily injury is no longer in question” (id at *6). In contrast, “[u]nder New Jersey law, an insured who pleaded guilty to assault may still be entitled to insurance coverage for damages caused by the assault” (id). Not surprisingly, the insured argued that New Jersey law applied. Thus, there was an actual conflict between New Jersey and New York law and, consequently, a choice-of-law analysis was necessary.

New Jersey courts have long since rejected the lex loci contractus rule in favour of “a more flexible approach that focuses on the state that has the most significant connections with the parties and the transaction” (Gilbert Spruance Co. v Pa. Mfrs.’ Ass’n Ins. Co., 629 A.2d 885, 888 (N.J. 1993)). The Appellate Division concluded that the trial court correctly applied New York law because “New York has a clear interest in protecting the expectations of insured policyholders who are citizens of New York regarding homeowners insurance policies covering property and people located in New York” (id at *7). The court further concluded that “New York also has an interest in procuring predictable and uniform results for insurance-coverage claims made under those policies” (id). According to the court, “[t]hat the punch was thrown in New Jersey doesn’t diminish those interests” (id).