With the passage recently of the New Jersey Insurance Fair Conduct Act, (S-2144), the Senate has cleared a new path for claimants in New Jersey to sue their insurance companies for bad faith. Currently, for an insurance consumer to succeed in a bad faith action, the policyholder must show that the insurance company had no reasonable basis to deny the claim. This standard, the so-called “fairly debatable” standard, set by Pickett v. Lloyd’s, 131 N.J. 457 (1993) has allowed much actual bad faith actions of insurers to go unpunished. If S-2144 makes it through the Assembly, and is signed by Governor Murphy, insurance consumers in New Jersey will be able to file a civil action against their insurer for an unreasonable delay or an unreasonable denial of an insurance claim, independently of any action taken by the NJ Department of Banking and Insurance.
The new proposed bill states:
a. In addition to the enforcement authority provided to the Commissioner of Banking and Insurance pursuant to the provisions of P.L. 1947, c.379 (C.17:29B-1 et seq.) or any other law, a claimant may, regardless of any action by the commissioner, file a civil action in a court of competent jurisdiction against its insurer for:
(1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or
(2) any violation of the provisions of section 4 of P.L. 1947, c.379 (C.17:29B-4).
b. In any action filed pursuant to this act, the claimant shall not be required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.
c. Upon establishing that a violation of the provisions of this act has occurred, the plaintiff shall be entitled to:
(1) actual damages caused by the violation of this act;
(2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and
(3) treble damages
Where bad faith is established, the bill makes insurers liable for actual damages, prejudgment interest, reasonable attorney’s fees, all reasonable litigation expenses and treble damages. We see this as a major change in the potential outcome against insurers and thus against insurance agents and brokers, who are frequently included as named defendants in bad faith litigation. Moreover, insurers are increasingly likely to sue their own agents or brokers following an unsuccessful bad faith defense.
According to Mike W. Smith, President and CEO of Axis Insurance Services, LLC, “We have also seen a significant increase in both the frequency and severity of E&O claims against our insurance brokers from their carriers relating to claims paid as a result of bad faith lawsuits. We believe this bill will bring to light more bad faith lawsuits against insurers which in turn could adversely affect our insurance agent and broker clients.”
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