Senate Bill Would Create Private Cause of Action in New Jersey for Bad Faith Insurance Claims

Legislative efforts are again underway in New Jersey to establish a private cause of action for bad faith claims against insurers.  This would help to codify bad faith doctrine recognized in Rova Farms Resort Inc. v. Investors Ins. Co., 65 N.J. 474 (1974) and in other decisions. Under current law, the Commissioner of Banking and Insurance can file a civil action to enforce violations of New Jersey’s laws regarding unfair claim settlement practices. The “Consumer Protection Act of 2012″ (S-2460) sets forth an additional private cause of action for individual insureds and their assignees regarding unfair practices in the settlement or attempted settlement of insurance claims made on their property and casualty insurance policies. Under the bill, individual plaintiffs would not be required to show that the alleged violation occurs “with enough frequency as to indicate a general business practice.” A successful claimant would be entitled to:

• The full amount of damages as set forth in the final judgment, regardless of the coverage limits of the policy;
• Prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses from the date of the institution of the action filed pursuant to the provisions of this bill.  The prejudgment interest shall be calculated at the rate provided for tort actions, or for non-acceptance of a formal offer for judgment, whichever is higher, as prescribed in the Rules of Court; and
• Punitive damages, when the insurer’s acts or omissions demonstrate, by clear and convincing evidence, actual malice or wanton and willful disregard of any person who foreseeably might be harmed by the insurer’s acts or omissions.

Similar legislation has been introduced in the state Assembly. Although prior efforts to create a private cause of action have failed, some observers believe the latest proposals may have a better chance of succeeding in light of concerns expressed in regard to carriers’ adjustments of Superstorm Sandy claims. If you have any questions about the proposed legislation or would like to discuss how it may impact your business, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you wor