Should Judge Recuse Himself From Case Involving His Own Insurer?

Liberty Mutual Insurance is pushing for a federal judge in New Jersey to recuse himself from a construction insurance case because he did not disclose that he has been a long-time Liberty insured, a significant claimant, and investigated by the insurer over multiple jewelry claims.

The insurer also suggests that senior Judge Stanley R. Chesler of the U.S. District Court for New Jersey may have exhibited bias in his handling of rulings in the construction insurance case that Liberty has been battling since 2019.

The federal statute governing the recusal of a federal judge provides that any judge “shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.” The test for recusal is “whether a reasonable person, with knowledge of all the facts, would conclude that the judge’s impartiality might reasonably be questioned.”

In explaining why it wants the judge to disqualify himself, the insurer said it only recently learned that Chesler and his family have been insureds of Liberty since approximately 1980. The judge and his family have four policies with Liberty Mutual — all of which have been renewed and are currently in effect. As a Liberty policyholder, Chesler has filed at least 14 claims, including four since the construction case began in 2019. At one point, Chesler was investigated by Liberty Mutual because of a history of claims for disappearances of jewelry.

Failure to Disclose

Despite this history, Liberty Mutual complains, Chesler made no disclosure about potential conflicts, which the insurer believes he should have done when the case was first assigned to him. Chesler’s failure to disclose at the beginning of the case deprived both parties the right to decide whether to seek recusal at that time, the insurer argues in its June 3 brief calling for the judge to disqualify himself.

Liberty Mutual asserts that given the totality of the circumstances involving Chesler and the insurer, a reasonable person would conclude that this is “precisely the kind of perception of bias and impartiality” that the law is meant to prevent. The insurer further maintains that the judge’s failure to disclose his ties with Liberty at the outset heightens the perception of bias.

The insurer also argues that Chesler’s filing of claims during the time he was issuing substantive rulings in the case could raise a question as to impartiality. Chesler filed a claim two days after being assigned this case, filed an auto claim the same day that he denied Liberty’s motion for reconsideration, and made a homeowners claim 10 days prior to awarding the plaintiff more than $300,000 in attorneys’ fees. Chesler was directly reimbursed in connection with two of his claims.

“Here, the accumulation of Judge Chesler’s Liberty claims, both prior to and during this litigation, submitted to Liberty with an expectation of payment/reimbursement, can clearly be viewed as endangering the appearance of neutrality that is essential for the judiciary to retain the public’s trust,” Liberty maintains.

Chesler Opinions

A party is not required to prove that a judge has exhibited actual bias. However, Liberty Mutual maintains a reasonable observer could view the judge’s opinion on the cross-motion for partial summary judgment in the construction case, and the court’s turnaround times on that and another substantive motion, as “evidence of negativity” towards Liberty.

Liberty cites what it says are inaccuracies, misrepresentations and criticisms in Chesler’s summary judgment ruing against it.

“The opinion goes to great lengths to discredit and vilify arguments made by Liberty. Those arguments were made in good faith and with factual and legal support, but the Court summarily dismissed them and took steps to find that, essentially, Liberty had no factual or legal basis to take the positions that it did,” Liberty alleges in its brief.

Furthermore, Liberty argues, the turnaround time for the ruling on the motion for partial summary judgment, as well as on a motion for reconsideration, “evidence a departure” from Chesler’s typical time for handling such tasks. Chesler issued these two rulings far more quickly than he typically does, in 15 and 9 days respectively, as opposed to his median turnaround of 120 and 42.

Liberty further contends that Chester’s handling of recusal and disclosure issues in two prior cases involving insurers Cigna and Aetna “demonstrates that he is aware of the obligation to disclose to the parties the existence of the relationship and the possibility that he would need to recuse himself.”

Jewelry Claims

Liberty argues that Chesler’s status as a policyholder of Liberty, and his submission of claims while handling the construction case, “created the possibility of a dispute arising between Liberty and Judge Chesler. Any type of coverage dispute – if Liberty had disclaimed coverage or paid less than what Judge Chesler should have been paid – would have led to a direct conflict during the pendency of this case.”

According to Liberty, Chesler and his spouse have reported disappearances of jewelry on several occasions, including a 2005 claim relating to a bracelet, a 2007 claim relating to an earring, a 2007 claim of missing jewelry, and a 2008 claim relating to a lost bracelet.

Liberty’s claims notes indicate that the Liberty adjuster had concerns over the number of missing jewelry claims that had been reported. In May 2008, Liberty Mutual’s special investigation unit (SIU) initiated an investigation into the disappearance of a diamond bracelet as there had “been several mysterious disappearances in the not too distant past.” After an SIU interview at Chesler’s home, Chesler’s wife found the missing bracelet within a file drawer in her office. The Cheslers also submitted lost jewelry claims in 2011, 2012 and 2014. The 2012 and 2014 claims were investigated because of the history of “lost, stolen and mysterious disappearances of jewelry.”

“An investigation related to multiple insurance claims could result in negative impressions by the insured towards its insurer. It would not be unreasonable to believe that the person subjected to such an investigation might harbor some displeasure towards his insurer,” Liberty suggests in its brief.

Chesler Reply

At a May hearing, Liberty says the judge implied that because his claims with Liberty have never been contested or denied, there was less of a basis for questioning his impartiality. But Liberty says this response does not address the issue of disclosure.

Liberty maintains that the parties in a case may waive disqualification, however before that happens a judge must fully disclose on the record all the facts relating to any potential appearance of partiality and leave it to the parties to decide whether to waive disqualification.

It is at least possible, Liberty argues, that had disclosure been made at the outset, the plaintiff in the construction suit would have had an issue with Chesler remaining on the case given he had a 40-year history with the company and had just made a new claim. Moreover, Liberty believes early disclosure would have led it to research the Cheslers’ claim history.

Chesler also presented a copy of an advisory opinion from the U.S. Judicial Conference Committee on Codes of Conduct, which discusses situations where a judge, insured by one of the parties, should disqualify himself, if the judge, the judge’s spouse, or minor child residing in the judge’s household “has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding.”

According to Liberty, that advisory opinion is not applicable since Chesler has no real financial interest in the construction case. The insurer does not argue that Chesler’s financial interest will be substantially affected or that his financial interest in Liberty, alone, requires recusal. Rather, the issue is his failure to recuse himself from this case or afford the parties the ability to move for recusal.

“Disclosure is an easy step to take to provide notice and a forum for the parties and the court to consider and address these issues. But it did not happen here,” the insurer argues.

The underlying coverage action stemmed from lawsuits filed by two employees of a construction firm against equipment rental firm United Rentals alleging that they sustained injuries when a rented boom lift malfunctioned. Liberty Mutual Fire Insurance Co. insured the construction firm. United sought a declaratory judgment that it was entitled to coverage as an additional insured on the Liberty policy.

In early 2022, United sought partial summary judgment on the duty to defend. Liberty sought partial summary judgment that it had no duty to defend. The U.S. District Court granted United’s motion for partial summary judgment finding that United qualified as an additional insured. The District Court denied Liberty’s motion for partial summary judgment. In May 2022, Liberty filed a motion for reconsideration, which the District Court denied in its entirety. Liberty appealed and in January 2024, the Third Circuit Court of Appeals dismissed Liberty’s appeal on jurisdictional grounds. It was only after that dismissal that Liberty discovered Chesler’s history with the company.