Earlier this year, Governor Phil Murphy signed into law Senate Bill 1559, now known as the New Jersey Insurance Fair Conduct Act (Act), that created a new statutory cause of action for bad faith in first-party insurance claims in the state of New Jersey. Prior to passage of the Act, bad faith claims in New Jersey were governed by the seminal case of Pickett v. Lloyd’s, 621 A.2d 445 (N.J. 1993). There, the court found that, to establish bad faith, a claimant had to show the “absence of a reasonable basis for denying benefits of a policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Under Pickett, a denial of coverage could not be considered bad faith so long as there was a reasonable basis to support the denial. This provided claimants with a remedy for an insurer’s reckless and unreasonable actions, but it also allowed insurers to deny claims where there were reasonable questions or law or fact.
For far too long automobile insurers have refused to offer their policy limits on serious UM/UIM claims since their exposure would ultimately be limited to the policy limits of the UM/UIM coverage. Less than full value offers would routinely be made since the full value of the policy would be the insurer’s maximum exposure even if the Plaintiff were successful at trial.
The passage of the Act significantly reduces the burden to establish bad faith in New Jersey. While the bill was initially drafted to cover all first-party claims, the final enacted version is limited to UM and UIM claims. The Act creates a private civil cause of action against an automobile insurer for:
- any unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or
- any violation of the provisions of section 4 of N.J.S.A. 17:29B (the New Jersey Unfair Claims Settlement Practices Act or “UCSPA”).
Penalties for violation of the Act are severe. The Act provides that a successful plaintiff shall be entitled to: (1) actual damages caused by the violation of the Act, which shall include, but need not be limited to, actual trial verdicts that shall not exceed three times the applicable coverage amount; and (2) pre-and post-judgment interest, reasonable attorney’s fees, and reasonable litigation expenses. In short, treble damages plus fees and costs.
The new law will give Plaintiffs a legitimate cause of action for bad faith when their UM/UIM claims are not handled fairly by their insurance carriers and is long overdue.