*415 OPINION
Presently before the Court is defendant Harleysville Insurance Company’s (“Har-leysville”) motion for partial summary judgment. The Court has subject matter jurisdiction over this case because plaintiff is asserting claims under the Miller Act, 40 U.S.C. § 270(a) et seq. See 28 U.S.C. § 1331. The Court has supplemental jurisdiction over plaintiffs state law claims pursuant to 28 U.S.C. § 1367. For the reasons set forth below, this motion is denied.
I.
Defendant Atul Construction Company (“Atul”) was hired by the United States of America to replace water lines at Fort Dix, New Jersey. The project was known as the “Garden Terrace, Water Line Replacement Project.” (Complaint, ¶4). On or about November 27, 1997, Atul contracted with plaintiff Don Siegel Construction Company (“plaintiff’ or “Siegel”) to provide labor on the project. (Id. at ¶ 7). In accordance with this contract, Atul was to provide plaintiff with all necessary materials. (Id.)
Plaintiff brought this suit pursuant to the Miller Act, 40 U.S.C. § 270a
et seq.
The Miller Act “governs the payment rights of persons who supply labor and material for the construction of most Federal construction projects.”
U.S. ex rel New Deal Plumbing Supp. Co. v. Nazon,
No.Civ.A. 98-2083,
According to plaintiff, Atul has refused to pay $83,347.95 it owes plaintiff for contract work performed on the Fort Dix project. (Id. at ¶¶ 13-14). On or about August 28, 1998, plaintiff filed with Harleysville and Atul a written bond claim notice of monies due and owed on the project. (Id. at ¶ 5). On January 25,1999, plaintiff filed the instant complaint seeking, inter alia, recovery of the $83,347.95 for subcontract work performed. To date, Harleysville has not paid plaintiff on the payment bond.
II.
“[S]ummary judgment is proper ‘if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ ”
Celotex Corp. v. Catrett,
In deciding a motion for summary judgment, the Court must construe the facts and inferences in a light most favorable to the non-moving party.
Pollock v. American Tel. & Tel. Long Lines,
III.
In the instant motion, defendant Harleysville seeks to dismiss Count III of plaintiffs complaint. In Count III, plaintiff seeks damages from Harleysville for its alleged bad faith delay in responding to *416 plaintiffs claim on the payment bond. Plaintiff claims that Harleysville owes an independent duty to the beneficiaries of surety bonds and that Harleysville is liable for its tortious bad faith conduct in breaching that duty. Defendant argues that New Jersey law does not permit recovery for a claim of bad faith damages against a surety. 1
The question of whether a subcontractor can sue a surety for bad faith conduct has yet to be considered by the New Jersey Supreme Court.
2
In fact, an extensive search by this Court has failed to produce any New Jersey cases dealing with this precise issue. In the absence of relevant state caselaw, our task is to predict how New Jersey’s highest court would resolve this question.
Gares v. Willingboro Township,
In arguing that the New Jersey Supreme Court would not recognize such a cause of action, defendant Harleysville relies heavily on a case from the Eastern District of Tennessee. In
In re Technology for Energy Corp.,
The Tennessee Court cited the decision of the New Jersey Supreme Court in
Rova Farms Resort, Inc. v. Investors Ins. Co.,
The New Jersey Supreme Court allowed a claim for bad faith damages against the defendant insurer. The Court characterized a suit for bad faith damages as a suit sounding in both tort and contract and found that such a claim was appropriate here given the special relationship between the insured and the insurance company.
Id.
The Tennessee Court in
In re Technology for Energy
determined that the New Jersey Supreme Court’s decision in
Rova Farms
to recognize a claim against an insurer for bad faith was driven by the “special relationship” between the insured and the insurer in that case.
The decision in Rova Farms dealt with an insurance company’s bad faith refusal to settle a third party’s claim against the policyholder. Suppose no third party is involved; the insurance company refuses to pay the policy holder’s own claim, known as a first party claim.
Between the policy holder with a first party claim and the insurance company, no special relationship exists. There is only the insurance contract. Of course, every contract includes an implied duty of good faith and fair dealing. Does this mean that the policyholder has a tort claim or can recover punitive damages for breach of contract if the insurance company in bad faith refuses to pay his party claim?
New Jersey’s intermediate appellate court says “No.” It has held that a policyholder cannot recover punitive damages from an insurance company for bad faith refusal to pay a first party claim. Bad faith by itself does not justify the recovery of tort damages; there must also be a special relationship created by the contract as in Rova Farms.
Id. at 986-87 (citations omitted).
The cases relied upon by the Tennessee Court in reaching this conclusion have either been explicitly or implicitly overruled by the decision of the New Jersey Supreme Court in
Pickett v. Lloyd’s,
In Pickett a truck-driver sued his insurer for its alleged bad faith failure to pay collision damage benefits when his tractor-trailer truck was destroyed in an accident. As in Rova Farms, the Supreme Court characterized this cause of action for bad faith refusal to pay as sounding in both tort and contract. Id. at 452. However, the Court emphasized that the label given to the cause of action was immaterial, “[c]ompensation should not be dependent *418 on what label we place on an action but rather on the nature of the injury inflicted on the plaintiff and the remedies requested.” Id. at 452.
The Court concluded that an insured plaintiff could recover damages against an insurer for its bad faith delay in responding to a claim. The Court found that such a cause of action was necessary to deter insurance companies from delaying payment on legitimate insurance claims. In support of this argument, the Court cited the case of
Polito v. Continental Casualty Co.,
in which the Third Circuit held that “if liability is limited to the amount of the loss plus interest, [insurance companies] are encouraged to take advantage of the insured by delaying payments.”
You mean that even if this had taken years that Lloyds [sic] hadn’t paid[.] ... [I]f you weren’t paid in January, February, March ... and you weren’t paid in 1987, you weren’t paid in 1988, you weren’t paid in 1989; you mean that none of that would make any difference? That you folks don’t have to pay until you get around to paying; and that the only remedy would be for loss of interest? That doesn’t seem to be fair.
Pickett,
This Court concludes that the New Jersey Supreme Court would apply the same rationale to a claim for bad faith damages brought by an obligee against a surety.
3
Although the relationship between an obligee and a surety is not identical to the relationship between an insurer and an insured, the relationships are closely analogous.
See In the Matter of the Liquidation of Integrity Ins. Co.,
Those courts which have refused to recognize a cause of action on behalf of an obligee for the bad faith conduct of a surety have noted that imposing a duty to act in good faith towards the obligee could conceivably run counter to the surety’s preexisting duty to the principal. For example, in
U.S. ex rel Ehmcke Sheet Metal Works v. Wausau Ins. Companies,
the district court for the Northern District of California concluded that permitting a subcontractor to sue a surety for bad faith would create "an unresolvable conflict of interest for the surety."
The Court finds this reasoning unpersuasive. The duty to exercise good faith in responding to the claim of an obligee is not a particularly onerous one. A surety will be found to have breached this duty only if “no valid reasons existed to delay processing the claim and the [surety] knew or recklessly disregarded the fact that no valid reasons supported the delay.”
Pickett,
The paramount purpose of a surety agreement is to protect the obligee in the event of the principal’s default.
See In the Matter of Integrity,
IV.
Defendant Harleysville argues that even if a cause of action for bad faith delay exists against a surety under New Jersey law, summary judgment is appropriate because plaintiff has not shown that defendant acted in bad faith. Defendant claims that it did not make payment on plaintiffs claims because representatives of plaintiff indicated to defendant that plaintiff and Atul were in the process of negotiating a settlement of the claim. Defendant states that it took no action on the claim “because it reasonably believed the matter would be resolved.” (Def.’s Mem. Supp. Summ. J. at 5). In addition, defendant claims that in November of 1998 it learned that a settlement was not likely and it has actively investigated plaintiffs claims and Atul’s possible defenses since that time. (Id. at 2). According to defendant, this process has been delayed because it has had trouble obtaining information from Atul because “Atul has been represented by three different attorneys in the past ten months.” (Def.’s Resp. at 5-6).
Plaintiff states that “from August 1998 (when Siegel filed its claim) to January *420 1999 (when Siegel’s complaint was filed) Harleysville[ ] deliberately took no action with regard to Siegel’s claim.” (PL’s opp. at 10). During this time period, plaintiff contends that it received one perfunctory telephone call from defendant which acknowledged receipt of plaintiffs claim and that, despite plaintiffs requests, no further information was provided by defendant. (Id.) Furthermore, plaintiff claims that, contrary to defendant’s assertions, it never advised defendant that it should delay investigating its claims while plaintiff and Atul attempted to negotiate a settlement. (Id.)
In accordance with the New Jersey Supreme Court’s holding in
Pickett,
defendant Harleysville cannot be found liable for alleged bad faith conduct unless “no valid reasons existed to delay processing the claim and [defendant] knew or recklessly disregarded the fact that no valid reasons supported the delay.”
V.
For the reasons set forth above, defendant’s motion for partial summary judgment is denied. The Court will enter an appropriate order.
Notes
. Although neither party has raised the issue, the Court notes that at least one federal district court has held that a subcontractor’s supplemental state law claims against a contractor or surety may be preempted by the Miller Act.
See U.S. ex rel. Pensacola Constr. Co. v. St. Paul Fire and Marine Ins. Co.,
. A succinct description of the surety relationship has been provided by the New Jersey Superior Court, Appellate Division, in
In the Matter of the Liquidation of Integrity Ins. Co.,
Suretyship is a contractual relation whereby one person or entity, the surety, agrees to be answerable for the debt or default of another, the principal. 74 Am. Jur.2d Suretyship § 1. The relationship created by the suretyship agreement is a "triparite one between the party insured, the principal obligor, and the surety.” Id. at § 3. The surety's obligation is said to be accessory or collateral, not direct, to the principal's obligation, but the obligation to the creditor or obligee of the principal is said to be "direct, primaiy, and absolute.” Id. at § 1. Stated another way, suretyship is a direct contract to pay the principal's debt if there is a default, but this liability is terminated immediately and completely if the principal pays or performs.
Id. at 906-907.
. In this case, plaintiff is the "obligee”, Atul is the "principal” and Harleysville is the surety.
. It is worth noting that New Jersey statutes have treated surety agreements as a type of insurance. See N.J.S.A. 17:22A-2 (" 'Insurance,' ‘insurance policy’ or 'insurance contract’ includes contracts or policies of life insurance, health insurance ... surety, guaranty and title insurance.”); N.J.S.A. 17:29A-1 (" 'Policy of insurance,’ without otherwise limiting its meaning, shall include guaranty and surety bonds.”).