In January 2022, Governor Murphy signed into law the New Jersey Insurance Fair Conduct Act (IFCA). The IFCA lets persons who make uninsured motorist/underinsured motorist (UM/UIM) claims sue for bad faith conduct by New Jersey auto insurance companies.
The IFCA enables persons who make UM/UIM claims to sue their insurance carrier in three situations:
- When the insurance carrier “unreasonably” denies a claim for coverage or benefits;
- When the carrier “unreasonably” delays providing coverage or paying benefits;
- Lastly, when the carrier violates the New Jersey Unfair Claims Settlement Act (to be discussed below).
Under the IFCA, motorists may seek damages including actual trial verdicts up to three times the coverage limits, pre-and post judgement interest, reasonable attorneys’ fees and reasonable litigation expenses.
The New Jersey Unfair Claims Settlement Practices Act (UCSPA)
The state legislature passed the New Jersey Unfair Claims Settlement Act (N.J.S.A. 17B:30-13.1, et seq.) in 2013. Section 17B:30-13.1 of the UCSPA prohibits insurance companies from engaging in several types of misconduct. Some of that misconduct includes:
- Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
- Failing to acknowledge and act reasonably promptly upon communications regarding claims arising under insurance policies;
- Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
- Refusing to pay claims without reasonably investigating the claim;
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
- Not attempting in good faith to effectuate prompt and fair settlements of claims in which liability has become reasonably clear;
- Compelling insureds to institute litigation to recover amounts due under an insurance policy.
There are several more examples of prohibited conduct under the UCSPA in the statute.
However, the USCPA does not provide for a private cause of action. The significance of the passing of the IFCA is that motorists can now sue auto insurance companies for violations of the USCPA regarding UM/UIM claims.
However, all other aggrieved policyholders still cannot sue their carriers for violations of the USCPA.
Aggrieved Insureds Can Sue for Common Law Bad Faith Conduct of Insurance Companies
Notwithstanding the lack of a private right of action under the UCSPA, New Jersey has well-developed case law that allows injured insureds to make common law claims against insurance companies for the bad faith handling of claims.
New Jersey courts recognize that insurance policies are contracts. Generally, under New Jersey contract law, all contracts impose an implied duty of good faith and fair dealing. Therefore, if an insurance company denies a claim without a proper investigation, the policyholder may have a bad faith claim against the carrier.
Likewise, if a carrier delays processing a claim or fails to settle a claim in which liability is clear, the carrier may have acted in bad faith.
In fact, while the USCPA does not have a private right of action, violations of the prohibited conduct detailed in the USCPA may serve as proof of bad faith conduct by the insurance company.
The New Jersey Supreme Court Has Addressed the Bad Conduct of New Jersey Insurance Companies
The leading Supreme Court case on bad faith conduct by insurance companies is Pickett v. Lloyd’s, 131 N. J. 457 (1993). In Pickett, the Court stated:
“An insurance company owes a duty of good faith to its insured in processing a first-party claim. It may be liable to a policyholder for its bad faith failure to pay benefits. … If a claim is “fairly debatable,” bad faith is not established. Under the “fairly debatable” standard, “a claimant who could not have established as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” The insurer must have no valid reason to deny benefits or delay the processing of the claim, and must have known or recklessly disregarded the fact that no reasonable basis existed for denying the claim.”
Another frequently cited case in this area is Badiali v. New Jersey Mfrs. Ins. Group, 220 N.J. 544 (2015). In Badiali, the Court discussed several issues regarding the bad faith conduct of insurance companies:
Good faith is defined as “honesty in fact in the conduct or transaction concerned.” Moreover, the good faith obligations of an insurance company to the insured run deeper than those in a typical insurance contract. Indeed, an insurer can breach its fiduciary duty to an insured without malice or ill will by the insurer.
There is an inherent fiduciary duty for insurance companies to settle claims.
Breach of Fiduciary Duty
A finding of simple negligence against the insurer will not support a breach of fiduciary duty claim. Rather, the plaintiff must show the insurer had “no debatable reasons” for denying the claim.
If You Are the Victim of Bad Faith Conduct by New Jersey Auto Insurance Companies, Contact Schiller, Pittenger & Galvin, P. C.
Not every insurance company or its employees are corrupt or bad people. However, insurance companies are not in the business to simply pay out money to insureds.
Rather, they are in the business of collecting premium payments and paying as little as possible to insureds who file claims.
However, there are many instances when New Jersey insurance companies engage in bad conduct in violation of the IFCA, UCSPA or established New Jersey case law. If you believe your insurance company has acted in bad faith towards you, contact the experienced New Jersey insurance attorneys at Schiller, Pittenger & Galvin, P. C. at 908-490-0444 in our Scotch Plains office or through our website here.