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The Potential Effects of the Proposed New Jersey Bad Faith BillAndrew L. Smith

S-2144, entitled the Insurance Fair Conduct Act, was passed by the New Jersey Senate on June 7, 2018. S-2144 could have a tremendous impact on the insurance industry and in connection with future litigated insurance claims. While the bill still must proceed through the Assembly and then be signed by Governor Phil Murphy, the bill, nevertheless, is highly significant.

The new bill states:

“1. This act shall be known and may be cited as the "New Jersey Insurance Fair Conduct Act."

2. As used in this act:

"First-party claimant" or "claimant" means an individual, corporation, association, partnership or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy.

"Insurer" means any individual, corporation, association, partnership or other legal entity which issues, executes, renews or delivers an insurance policy in this State, or which is responsible for determining claims made under the policy.

3. 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.
 
4. This act shall take effect immediately.
STATEMENT

This bill, the "New Jersey Insurance Fair Conduct Act," establishes a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer.

Under the bill, a claimant may 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).

Section 4 of P.L.1947, c.379 (C.17:29B-4) defines certain activities as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance including, among other things, misrepresentations and false advertising of policy contracts, false information and advertising generally, defamation, unfair discrimination, unfair claim settlement practices and failure to maintain complaint handling procedures.

The bill provides that, in any action filed pursuant to the bill, 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.

The bill also provides that, upon establishing that a violation of the provisions of the bill has occurred, the claimant shall be entitled to:

(1) actual damages caused by the violation;
(2) prejudgment interest, reasonable attorney's fees, and all reasonable litigation expenses; and
(3) treble damages.”


S-2144 would provide insurance policyholders with potentially punishing ammunition to hold insurance carriers liable for “unreasonable” mishandling of their claims for benefits. The bill would allow policyholders to file suit against their insurance carriers and their employees, individually, for various types of “unreasonable” conduct, including the denial and/or delay of the processing of their insurance claims. Although the meaning of “unreasonable” has yet to be defined, it would be a much easier standard to prove than the now-existing common law requirement to demonstrate a pattern or practice by the insurance company of bad faith. S-2144 makes insureds’ task of imposing liability much easier.

Currently, the only remedy available to New Jersey policyholders is to sue their respective carriers under New Jersey common law for bad faith. Successful policyholders can recover consequential damages, if some form of bad faith is proven (i.e., bad faith delay and/or bad faith denial). This bad faith conduct must be demonstrated as a pattern or practice, which often makes it difficult for insureds to succeed in prosecuting their claims.

Consequently, S-2144, as opposed to the above common law framework, could bestow enhanced remedies upon successful policyholders who can prove that their respective carriers acted “unreasonably”; these enhanced remedies include actual damages, prejudgment interest, attorneys’ fees, and treble damages. The fee-shifting provision contained within S-2144 is very significant, as it constitutes yet another incentive for suit.

Lastly, the wording of S-2144 is important, as the bill defines an insurer to include “any individual, corporation …” Thus, liability apparently could be imposed upon any insurance company, including its individual employees.

This bill could have a drastic impact upon insureds, insurers, and the legal and business industries, respectively. In fact, the bill has already been fervently debated on both sides of the aisle. According to the New Jersey Business & Industry Association (NJBIA), consumers could pay 40% or more for auto insurance due to litigation costs associated with S-2144. As such, the NJBIA is opposed: “Let’s be clear: a vote for this bill is a vote to increase insurance premiums across the board, including the mandatory auto insurance coverage all state drivers must carry,” Chief Government Affairs Officer Chrissy Buteas said. “Allowing individuals to sue for something as vague as ‘bad faith’ would be a bad deal for everyone else who has to pay for the increased litigation.” Supra, https://www.njbia.org/bad-faith-bill-a-bad-deal-for-consumers/. Additionally, Senator Gerry Cardinale (R-39) characterized the bill as follows during a speech on April 12, 2018: “Extortion is illegal except if lawyers can arrange for it to be legislatively sanctioned. This bill will provide a mechanism for lawyers to extort insurers. Now that might be much a bad thing, except that the cost will be passed right back to our constituents in the form of higher premiums.” See https://www.senatenj.com/index.php/cardinale/cardinales-floor-speech-on-the-new-jersey-insurance-fair-conduct-act/38314.

In contrast, Senator Nicholas Scutari (D-22), one of the two sponsors of the bill, stated: “Too often, people are taken advantage of and can’t fight back. Our bill allows our consumers to have the ability to fight back. Senator Vin Gopal (D-11), the second sponsor, said: “We need to install safeguards in our insurance system so the insured receive what they are owed in a prompt and fair manner.”

Monitoring this bill, and parallel proposals in the Assembly is paramount, as it may change the manner in which legal practitioners, insureds, and insurers approach a huge variety of insurance claims.