An Anniversary in Supersedeas Bond Law

There are very few cases that discuss Rules 2:9-5 or 2:9-6, the rules dealing with supersedeas bonds.  One of those cases, Courvoisier v. Harley Davidson of Trenton, Inc., 162 N.J. 153 (1999), was decided on this date in 1999.

In that case, plaintiff was badly injured in a motorcycle accident.  He sued Harley Davidson of Trenton, Inc., who had sold and serviced the motorcycle, asserting that negligent maintenance of the motorcycle caused the accident.  Plaintiff won a jury verdict of over $1 million.

Harley Davidson had a garage liability insurance policy with American Hardware Mutual Insurance Company that had a limit of $500,000 per occurrence.  When Harley Davidson appealed the jury verdict, American Hardware moved for what it called a “partial stay” of the judgment, upon American Hardware’s posting of a supersedeas bond for $500,000, its policy limit.

Harley Davidson cross-moved to compel American Hardware to post a bond for the full amount of the judgment.  Harley Davidson contended that American Hardware had failed to try to negotiate in good faith a settlement within the policy limits, so that American Hardware might be liable for the entire judgment under the “Rova Farns” (Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974)) bad faith doctrine.  The Law Division agreed with Harley Davidson and ordered American Hardware to post a full bond.

The case reached the Supreme Court, which overturned that result in a unanimous opinion by Justice Long.  Relying on the provision of Rule 2:9-6 that, for “good cause,” a stay can be obtained based on securing less than the full amount of the judgment, and Rosato v. Penton, 182 N.J. Super. 493 (Law Div. 1982), the only New Jersey case that, to that point, had addressed the “good cause” provision, Justice Long ruled that American Hardware need only secure an amount up to the limit of its policy.  The weight of authority elsewhere also reached that result.

That outcome, Justice Long said, reconciled the divergent interests of the insurer, the insured, and the judgment creditor.  The insurer’s and insured’s interest are parallel up to the policy limit, and it was reasonable to require American Hardware to bond up to that amount.  Above that amount, however, their interests diverged, and the insured was given several choices to protect the plaintiff judgment creditor: “The insured may bond the excess; show good cause why a full bond for the excess is not necessary to protect the judgment creditor; or be subject to supplementary proceedings including a non-dissipation order and possible execution.”

Justice Long then turned to what she termed a “more difficult” question: whether the alleged bad faith of American Hardware should be considered in connection with the issue of the bond.  She concluded that there was “simply no practical way to dispose of the Rova Farms case in time to fully factor it into a Rule 2:9-6 analysis.”  Again, other jurisdictions declined to factor an insurer’s alleged bad faith settlement conduct into the analysis regarding a bond on appeal.  The Court was troubled, however, by “the possibility of pre-appeal execution against a judgment debtor whose insurer is later found liable for the excess on a breach of good faith theory,” and Justice Long referred the issue to the Civil Practice Committee.

Finally, plaintiff argued that if American Hardware was allowed to post a partial bond, that bond should cover the interest on the judgment.  Justice Long ruled that if the terms of American Hardware’s policy required American Hardware to cover interest, the bond should include interest.  The record did not speak to that issue, so the Court directed the Law Division to address and decide it.