New Jersey does not have a fee-shifting statute. Coupled with the high-standard a policyholder’s property damage litigator must prove for bad faith, there is not much in the form of a deterrent to halt insurance companies continuing delay, deny, defend tactics once the claim is in litigation. Over the past few years, I have seen this also result in certain carriers seemingly making it a trend to file counterclaims against insureds.

Faced with such counterclaims, property damage litigators need to review the facts of the counterclaim and see if there is any basis for the allegations. Every now and then I come across a counterclaim that is based on mere conjecture, devoid of any supporting fact, and could only be filed without good faith and in attempt to harass or intimidate the insured. When I see these counterclaims, I turn to New Jersey Rule 1:4-8 and N.J.S.A. 2A:15-59.1. These rules serve as a deterrent against not only the carriers, but also the attorneys who sign off on frivolous counterclaims.

Rule 1:4-8 provides that an attorney may not sign, file or advocate a pleading for an improper purpose such as to harass, cause needless delay or increase another party cost. Thus, by signing a Complaint, an attorney certifies that:

  1. The papers are not being presented for any proper purpose, such as to harass or to cause unnecessary increase in the cost of litigation;
  2. The claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (and)
  3. The factual allegations have evidentiary support or, as to specifically identify allegations, they are either likely to have evidentiary support or they will be withdrawn or corrected if reasonable opportunity for future investigation or discovery indicates insufficient evidentiary support.1

An attorney who violates this rule is subject to sanctions consisting of (1) an Order to pay a penalty into the court, or (2) An Order directing the payment of the movant’s reasonable attorneys’ fees and other expenses incurred in an opposing frivolous litigation.2

Similarly, N.J.S.A. 2A:15-59.1 provides that “a party who prevails in a civil action…may be awarded all reasonable litigation costs and reasonable attorney’s fees, if the Judge finds at any time during the proceedings…that a Counterclaim…of a non-prevailing party was frivolous.” Under the statute, the Counterclaim is considered frivolous if (1) It “was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury” or (2) “The non-prevailing party knew, or should have known that the Counterclaim…was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension…of existing law.”3

It is important to note that there is a process for seeking the sanction under either the Rule or the Statute. A requirement is that a letter is sent to the carrier and its counsel detailing the frivolous nature of the Counterclaim. They will then have 28 days to respond. If the there is no response, then Plaintiff, after final judgment is entered, will have 20 days to move for Sanctions.

In sum, property damage litigators need to take action against the insurance company and their attorneys when they file cavalier pleadings. property damage litigators cannot just sit on their hands and give insurance companies and their attorneys the liberty to attempt off the wall arguments without recourse. Use of the above rules, when applicable and necessary, is a good way to diligently represent the insured.
1 Rule 1:4-8 (a).
2 Rule 1:4-8 (d).
3 N.J.S.A. 2A:15-59.1b (1) and (2). See Halfond v. County of Bergen, 279 N.J. Super. 149, 152-53 (App. Div.) certif. den., 141 N.J. 96 (1995) (affirming the award of attorney’s fee where the Plaintiff knew before filing the Complaint that there was no basis for the claim).