The Newly Enacted “New Jersey Insurance Fair Conduct Act” Permits Bad Faith Claims Against Insurance Companies

On January 18, 2022, Governor Phil Murphy enacted the “New Jersey Insurance Fair Conduct Act.”  Pursuant to the Act, a person injured in a motor vehicle accident and entitled to uninsured or underinsured motorist coverage can sue his/her insurance company for “an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy…” or violation of the New Jersey Unfair Claims Settlement Practices Act (N.J.S.A. 17:29B-4).  NJ S1559.  The law permits the insured to sue for damages in the amount of three times the applicable coverage amount, plus pre- and post-judgment interest, attorney fees, and litigation expenses.  The new bill forbids insurance companies to increase rates for insureds who comply with the new law and file bad faith lawsuits.  

One supporter of the new bill, incoming Senate President Nicholas Scutari said that if “insurance companies deal with their own policyholders in good faith…there’s nothing to worry about with respect to this bill.”  However, the bill lacks clarification on what constitutes “unreasonable delay” and ”unreasonable denial.”  We anticipate that clarification will likely come from the courts determining legislative intent and what actions are deemed unreasonable.  Fortunately, the new act only relates to claims for uninsured/underinsured motorist benefits. 

Insurance companies would be wise to review their uninsured/underinsured claim guidelines and practices.  Firstly, in order to makes sure, they comply with the New Jersey Unfair Claims Settlement Practices Act.  Secondly, to confirm they do not permit unreasonable delay or denial of claims.  We believe this is necessary in order to assist in defending against first-party bad faith claims anticipated by the new law.