ESMAY PARCHMENT VS. CITY OF EAST ORANGE(L-182-12, ESSEX COUNTY AND STATEWIDE), A-3150-14T3

Background

Plaintiff Esmay Parchment sued two East Orange police officers (Flood and Johnson) and the City under 42 U.S.C. §§ 1983/1985 after excessive-force and false-arrest claims; jury awarded $300,000 plus fees.
The City, per its collective negotiations agreement with the FOP and N.J.S.A. 40A:14-155, paid for separate counsel to defend each officer but did not have applicable primary commercial insurance or participate in a joint insurance fund; it did not expressly promise to indemnify judgments.
The City was dismissed from the claim pre-trial via Monell; the officers were later found liable by a jury.
Plaintiff demanded the City indemnify the officers; the City refused, saying it had no legal obligation to indemnify for the officers’ conduct.
Plaintiff sued for declaratory relief (that the City must indemnify), third-party-beneficiary breach of the agreement, and bad-faith refusal to indemnify; the trial court granted summary judgment to the City and dismissed plaintiff’s claims.
On appeal, plaintiff abandoned the contract claim and argued equitable estoppel (relying on Griggs) and breach of a duty of good faith to compel indemnification; the Appellate Division affirmed summary judgment for the City.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the City is estopped from denying indemnification because it provided a defense without reserving rights	City’s provision of defense created justifiable reliance that it would indemnify (Griggs)	City was not an insurer or formal self-insurer, had no obligation to indemnify, and did not control the defense	No estoppel; Griggs inapplicable where defendant is not an insurer/self-insurer and did not exercise control over defense
Whether the City’s acts created an implied duty to indemnify akin to insurance obligations	City’s conduct (providing counsel, involvement) triggered insurer-like duties including indemnification	The agreement and statute only require providing a defense, not indemnification; City ‘‘went bare’’ and did not assume indemnity	No implied duty to indemnify; contractual/statutory duties limited to defense costs
Whether the City breached a duty of good faith by refusing to indemnify	Refusal to pay judgment constituted bad faith akin to insurer bad-faith	No insurer-insured relationship; therefore no insurer bad-faith duty; Agreement’s implied covenant was not breached because indemnification was not an expectation	No bad-faith liability; absent coverage/entitlement, bad-faith claim fails
Whether plaintiff, as assignee of one officer, could compel indemnification	Assignment of officer’s indemnification claim gives plaintiff standing to pursue estoppel/bad-faith theories	Same defenses apply regardless of assignee status; legal duty lacking	Standing via assignment did not change substantive deficiency; claims fail on merits

Key Cases Cited

Monell v. Department of Social Services, 436 U.S. 658 (municipal liability requires municipal policy or custom)
Griggs v. Bertram, 88 N.J. 347 (1982) (insurer estopped from denying coverage when it controls defense and fails to timely disclaim)
American Nurses Ass'n v. Passaic Gen. Hosp., 98 N.J. 83 (1984) (‘‘self-insurance’’ often not treated as insurance for coverage/priority issues)
Merchs. Indem. Corp. v. Eggleston, 37 N.J. 114 (1962) (prejudice presumed where insurer controls defense and later denies coverage)
City Council of Elizabeth v. Fumero, 143 N.J. Super. 275 (Law Div. 1976) (municipality’s duty to defend does not necessarily include duty to indemnify)
Hurley v. Atlantic City Police Dep't, 944 F. Supp. 371 (D.N.J. 1996) (distinguishing defense obligations from indemnification by public entities)
Price v. N.J. Mfrs. Ins. Co., 182 N.J. 519 (2005) (insurer’s implied covenant of good faith in processing claims)
Pickett v. Lloyd's, 131 N.J. 457 (1993) (cause of action for insurer bad faith limited to claims where coverage is established)
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210 (2005) (contractual implied covenant of good faith and fair dealing)