New Jersey Contemplating New Legislation to Force Insurers Into Quicker Settlements

The New Jersey legislature introduced late last year a potential bill that could affect both insurers and their customers. Senate Bill 1559 (where it has passed) and its companion Assembly Bill 1659 (undergoing a second reading in committee), named the “New Jersey Insurance Fair Conduct Act,” will establish a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer.

Specifically, the bill defines “insurer” to mean 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.  Further, the bill defines as “first-party claimants” as individuals injured in a motor vehicle accident and entitled to the uninsured or underinsured motorist coverage of an insurance policy asserting an entitlement to benefits owed directly to or on behalf of an insured under that policy.

According to the bill, a claimant may file a civil action in a court of competent jurisdiction against its automobile 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 New Jersey law preventing unfair or deceptive practices.  For example, a claimant may file a cause of action for activities as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance, including, but not limited to, unfair claim settlement practices and failure to maintain competent handling procedures. Moreover, upon establishing that a violation of the provisions of the bill has occurred, the claimant shall as a matter of law be entitled to: (1) actual damages caused by the violation including but not limited to, actual trial verdicts; and (2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses.

If the bill becomes law this could greatly impact policies that have already been written by insurers as it provides yet another tool for plaintiff’s attorneys to leverage insurers and their defense counsel into settling earlier and at higher than usual rates because of the threat of a pending trial.  Further, it creates a bigger rift between the insured and the insurer as insurance companies now have to underwrite their policies with the expectation that every insured is a potential claimant.  This new concern will bear a higher cost to the consumer who is legally obligated to purchase insurance, leading to higher premiums.

All indications are that the Assembly will be voting to pass the law and it will be signed by Governor Murphy later this year.  Given, the infancy of the law, it will now be in the hands of the courts to interpret the language laid out by the New Jersey Legislature.  At this moment, it is unclear what would be considered “unreasonable delay” or “unreasonable denial”, nor is it certain what would be considered “unfair or deceptive practices” under the Act.  As such, we must await the judiciary taking up these matters and setting the precedent for future practice.