On January 18, 2022, New Jersey Governor Phil Murphy signed into law the New Jersey Insurance Fair Conduct Act (the “Act”), providing a new cause of action for uninsured and underinsured motorist benefits claimants. Under the “New Jersey Insurance Fair Conduct Act,” claimants are effectively “deputized” to enforce the Unfair Insurance Practices Act, N.J. Stat. Ann. § 17:29B-1, et seq. via private civil actions for damages.

Insured claimants can demonstrate violations of this Act if the insurer’s delay of payment of benefits is “unreasonable” in length or the insurer’s denial of a claim is “unreasonable.” Additionally, an insured can establish a violation of this Act if the insured can prove the insurer committed any of the enumerated unfair claim settlement practices under the New Jersey Unfair Claims Settlement Practices Act (UCSPA), N.J.S.A. § 17:29B-4. This includes failing to implement policies for the reasonable and prompt investigation of claims, and compelling insureds to bring suit to recover benefits owed by offering substantially less than the amount ultimately awarded by the insured. Insureds need not demonstrate that unreasonable claims handling constituted a general business practice.  Crucially, the statute provides no guidance on what is “reasonable.”

Once a violation of the Act is demonstrated, the Court is entitled to award actual damages caused by the violation, including trial verdicts, in an amount limited to three times the policy limit. The Act also provides for the awards of “pre- and post-judgment interest, reasonable attorney’s fees, and reasonable litigation expenses.” The Act also provides for cost containment measures for consumers, preventing increases in rates for compliance with the Act. Finally, the Act forbids the “dissemination of inaccurate or misleading information” to insureds pertaining to this Act. Thus, insurers are essentially forbidden from advertising that adverse effects on insurance premiums resulted from this new statute.

In a sense, the statute can be interpreted to rewrite insurance policies in New Jersey to provide up to three times the UIM limits selected and paid for by the insured. That is, in the event a UM/UIM claim proceeds to adjudication, and the insured recovers a verdict or award greater than the insurer’s offer, the statute defines actual damages to include the amount of the verdict, up to three times to the UM/UIM limits. Thus, although the insured never actually held a contract for higher UM/UIM limits, that amount is now an “actual” damage that can be recovered.

Numerous questions remain unanswered. The Act does not define what an “unreasonable” delay or basis is, does not describe the standard of evidence needed to demonstrate bad faith conduct, and does not specifically state whether insureds have a right to a jury trial in bad faith suits. It likewise does not provide guidance as to whether the bad faith claim can or should be brought together (and, for that matter, tried together) with the underlying UIM claim. Also, by creating cause of action for any technical violation, at any state of the claims handling process (regardless of its actual impact on the overall handling of the claim) creates a de facto removal of the contractual policy limits untethered to the reality of whether the insured actually sustained any disadvantage-or even was aware of-a previous, technical violation of the Unfair Claims Settlement Act. Inherently, this incentivizes claimants’ attorneys to invite such errors to create a mechanism for increasing the UIM limits and providing fee-shifting.

Despite this apparently low standard, there are several limitations in scope and breadth. First, the statute only applies to uninsured and underinsured motorist claims, leaving out first-party medical benefits claims and property damage claims. Additionally, the actual damages cap at three times the policy limit provides a damages cap, albeit by re-writing the UM/UIM limits as a form of punitive damages under the guise of “actual” damages.

These are all issues that will need to be decided by the judiciary on a case-by-case basis. Nonetheless, the Act’s language suggests this standard will apply as a negligence-based standard, similar to common-law bad faith claims and contrary to other statutory bad faith regimes in other states, including the knowledge-or-reckless standard found in Pennsylvania.

For additional questions, please contact Scott Tredwell, Esq., Robert Cahall, Esq., or Christopher Regan, Esq.

This article was prepared by McCormick & Priore, P.C. to provide information on recent legal developments of interest to our readers. This publication is in no way intended to provide legal advice or to create an attorney-client relationship. All Rights Reserved. This article may not be reprinted without the express written permission of McCormick & Priore, P.C.