Milcarek v. Nationwide Ins. Co.

Decision Date19 May 1983
Citation463 A.2d 950,190 N.J.Super. 358
PartiesPatricia MILCAREK, Plaintiff-Appellant, v. NATIONWIDE INSURANCE COMPANY, Defendant-Respondent.
CourtNew Jersey Superior Court — Appellate Division

Gary D. Ginsberg, Magnolia, for plaintiff-appellant (Nathan A. Friedman, Cherry Hill, attorney; Robert A. Silverman, Cherry Hill, on the brief).

Rocco J. Tedesco, Landisville, for defendant-respondent (Vincent J. Pancari, Vineland, attorney).

Before Judges ARD, KING and McELROY.

The opinion of the court was delivered by


The dispute in this case results from the initial refusal of defendant Nationwide Insurance Company ("Nationwide") to pay Personal Injury Protection (PIP) benefits, medical bills, for an injury allegedly attributable to an automobile accident. After suit was brought, plaintiff succeeded in obtaining judgments for the amount of her claimed medical bills and 10% interest as provided by the statute in cases of nonpayment, N.J.S.A. 39:6A-5(c), and $1260 in counsel fees and costs. This appeal is taken from the summary judgment in defendant Nationwide's favor on Count Two of the complaint claiming "exemplary or punitive" damages because defendant "has refused to fulfill its contractual obligation to the plaintiff ... and ... has willfully, knowingly and in defiance of plaintiff's repeated protests and notices acted maliciously and in wanton disregard of the rights of the plaintiff."

In February 1982 plaintiff filed a complaint alleging that Nationwide owed her PIP benefits under N.J.S.A. 39:6A-4 resulting from consequential injuries sustained on October 26, 1979 while she was a passenger in a car owned and driven by Francis Toner, defendant's insured. As a result of the accident plaintiff had sustained a comminuted fracture of the left femur, requiring hospitalization. By May 1980 her leg was healing well. Defendant had paid voluntarily all medical expenses to June 6, 1980 when plaintiff refractured her femur while getting down from a pinball machine on which she had been sitting in a night club. The x-rays showed "recent refracture of femur at site of old fracture." Nationwide originally rejected the claim for medical expenses arising from this June 1980 episode. Nationwide's claims attorney concluded "that the treatment and services arose from an injury which did not arise from an automobile accident" and were not compensable under the New Jersey no-fault law. Under our act medical expense benefits are payable by the PIP carrier to persons "who sustained bodily injury as a result of an accident ..., while occupying the automobile of the named insured." N.J.S.A. 39:6A-4. This legal causation issue was ultimately resolved against Nationwide by summary judgment on Count One of the present complaint and goes unchallenged on this appeal.

On Count Two the Law Division judge ruled that "there are no facts on which a jury could reasonably conclude that the actions of defendant would rise to the point of permitting punitive damages, ... [and] the law does not as of now contain a cause of action for punitive damages." We agree and affirm.

On this appeal plaintiff urges the adoption of a new theory of recovery in this state--punitive damages where a PIP carrier wrongfully refuses to pay a claim, in addition to the 10% statutory penalty, N.J.S.A. 39:6A-5(c), and counsel fees already recovered under R. 4:42-9(a)(6). Plaintiff seizes upon dictum in several reported cases and urges that a "special relationship" existed which imposed a duty on her host driver's PIP carrier to pay punitive damages when it, in effect, broke its contract to pay her medical bills consequent upon her reinjury in June 1980.

In Sandler v. Lawn-A-Mat Chem. & Equip. Corp., 141 N.J.Super. 437, 358 A.2d 805 (App.Div.), certif. den. 71 N.J. 503, 366 A.2d 658 (1976), this court stated:

In the absence of exceptional circumstances dictated by the nature of the relationship between the parties or the duty imposed upon the wrongdoer, the concept of punitive damages has not been permitted in litigation involving breach of a commercial contract. [Citations omitted.]

* * *

* * *

Several exceptions have been carved out to permit punitive damages in actions arising out of contract where the unusual relationship between the parties reflects a breach of trust beyond the mere breach of a commercial contract. For example, in states where an action for breach of contract of marriage is viable, punitive damages may be recovered. Lanigan v. Neely [4 Cal.App. 760, 89 P. 441 (Dist.Ct.App.1907).] Similarly, an action against a public utility for failure to comply with its special statutory public duty, 5 Corbin, Contracts, § 1077 at 443, or an action by a depositor against his banker, Woody v. Nat'l Bank of Rocky Mount, [194 N.C. 549, 140 S.E. 150 (1927),] 5 Corbin, op. cit. § 1077 at 444, have been held to be in a class of exceptions to the general rule excluding recovery in contract actions. Other contractual litigation in which punitive damages are approved are those involving a fiduciary relationship such as an action by a seller against his real estate broker. Security Corp. v. Lehman Associates, Inc., 108 N.J.Super. 137 (App.Div.1970); Brown v. Coates, [253 F.2d 36 (D.C.Cir.1958).] See also Annotation, Right of principal to recover punitive damages for agents' or brokers' breach of duty, 67 A.L.R.2d 952 (1959).

An intermediate appellate court of California allowed exemplary damages in a case by an assured against an insurance carrier on the theory that a bad faith refusal to make payments under a disability policy accompanied by false and threatening communications "sounds in tort notwithstanding that it may also constitute a breach of contract." Fletcher v. Western Nat'l Life Ins. Co., 10 Cal.App.3d 376, 89 Cal.Rptr. 78, 93 (D.Ct.App.1970). The court emphasized the "special duty to plaintiff of good faith and fair dealing" which an insurer owes an insured in reaching its conclusion. [Citations omitted]. [Id. 141 N.J.Super. at 449-450, 358 A.2d 805.]

This court found that the facts in Sandler, which was not an insurance case, suggested that the claim was based purely on breach of a contract which created "no special relationship or duty beyond that arising out of any commercial transaction." Id. 141 N.J.Super. at 451, 358 A.2d 805. However, the court noted:

We do not mean to conclude from the foregoing that the right to punitive damages should turn simply upon the form of action involved, namely, whether it is designated as a tort rather than a contract. There may arise a case involving such an aggravated set of facts that punitive damages might be appropriate regardless of the contract form of the cause of action and even though it may be beyond the scope of the recognized exceptions in the adjudicated cases. [Ibid.]

In Kocse v. Liberty Mut. Ins. Co., 152 N.J.Super. 371, 377 A.2d 1234 (Law Div.1977), the court considered whether defendant insurance company was liable for punitive damages where defendant determined that plaintiff's accident was not covered under the automobile liability policy issued to plaintiff's parents. Plaintiff in that case was driving his fiancee's car at the time of the accident. Defendant paid plaintiff PIP benefits, but it later questioned coverage when it became apparent that it might be liable, as an excess carrier, to other parties injured in the accident. It then conducted an investigation which resulted in a determination that the accident was not covered under its policy.

The Kocse court recognized the division among courts in this country on the question of whether punitive damages are allowable in actions involving insurance contracts, citing Annotation, "Insurer's liability for consequential or punitive damages for wrongful delay or refusal to make payments due under contracts," 47 A.L.R.3d 314, 339-348 (1973). Kocse, supra, 152 N.J.Super. at 377, 377 A.2d 1234. The court stated that New Jersey may be following a trend toward allowing punitive damages more easily in contract actions, "at least where there is some form of special relationship existing between the parties." Id. at 378, 377 A.2d 1234. The court further stated: "Such relationships surely would include the fiduciary relationship which has been held to exist between an insurer and its insured. However, the extent to which such a relationship exists between these parties has not been defined." Ibid. The court noted that a fiduciary relationship was found to exist between a liability insurer and its insured facing excess exposure in Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 492, 323 A.2d 495 (1974), but pointed out that this decision was based on the court's reasoning that because of a policy provision prohibiting the insured from settling in its own behalf, the insurer had become the agent of the insured in this respect. Kocse, supra, 152 N.J.Super. at 378, 377 A.2d 1234. The Kocse court then reasoned

It is questionable whether such reasoning could be applied to all of the dealings between the parties. The mere presence of a fiduciary duty regarding one aspect of the insurance contract does not necessarily require that such a duty govern all aspects of the agreement. See Baxter v. Royal Indemn. Co., 285 So.2d 652 (Fla.D.Ct.App.1973). Certainly, an insurer's task of determining whether the insurance policy provided coverage of an accident cannot be deemed to give rise to such a duty on the part of the insurer. The parties, in this respect, are merely dealing with one another as they would in a normal contractual situation. They are not acting as principal and agent. Thus, the company is only required to fulfill the ordinary contractual duties imposed by the insurance agreement. [Id. at 378-379, 377 A.2d 1234.]

Relying on Sandler, supra, the court noted that, even in the absence of such a fiduciary duty, punitive damages might still be awardable if the case involved a...

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