On June 7, 2018, the New Jersey State Senate passed the New Jersey Insurance Fair Conduct Act (NJ S2144). The bill seeks to create a new statutory cause of action against insurance companies for an unreasonable delay or denial of a claim for insurance benefits, or for any violations of New Jersey's Unfair Claims Settlement Practices Act. If it became law, the bill would entitle successful claimants to recover treble damages and reasonable attorneys' fees and expenses, in addition to actual damages. The passage in the Senate follows a nearly decade-long battle to introduce legislation of this type in New Jersey. The proposed legislation now advances to the New Jersey Assembly for consideration.
At present, New Jersey law does not permit insurance claimants to sue for violations of the Unfair Claims Settlement Practices Act. Authority to enforce that law belongs solely to the Commissioner of Banking and Insurance. However, New Jersey common law does permit private litigants to bring actions for the bad-faith denial of a first-party claim for insurance benefits1. Litigants who prevail in such actions are permitted to recover consequential damages arising from the breach (in addition to the policy benefits for the claim), but do not have a right to recover treble damages or attorneys' fees. Insurance companies may also successfully defend against common-law bad-faith actions in New Jersey where there exists a "fairly debatable" reason for the denial of coverage.
The proposed legislation seeks to dramatically change the insurance bad faith law of New Jersey in a manner adverse to insurance companies. Under the bill, any claimant under an insurance policy issued in New Jersey could assert a claim for the "unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy" or for violations of the Unfair Claims Settlement Practices Act2. The legislation expressly waives any requirement for a claimant to show that the insurer's conduct involved a general business practice. Of even greater concern, the proposed legislation entitles any successful claimant to recover treble damages and reasonable attorneys' fees and expenses, in addition to any actual damages and pre-judgment interest.
If enacted, the proposed legislation would provide a bonanza for plaintiffs' lawyers and could significantly increase the costs for insurers to operate in the state. The bill fails to define what constitutes the "unreasonable" delay or denial of a claim for benefits, and fails to include good-faith protections for insurers that exist under the current law. The bill also provides for automatic recoveries of treble damages and reasonable attorneys' fees that could dwarf the amount of the claimant's actual damages in the case. The bill is presently before the New Jersey Assembly Financial Institutions and Insurance Committee for review.
Footnotes
1. Pickett v. Lloyd's, 131 N.J. 457 (1993)↩
2. N.J.S.A. 17:29B-4↩
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