The New Jersey Senate recently approved a measure that could result in significant changes in the handling first-party insurance claims submitted by policyholders to their insurance companies in New Jersey.  Echoing laws already present in other states, the New Jersey Insurance Fair Conduct Act would establish a new civil action for the unreasonable delay or unreasonable denial of a claim for insurance benefits, as well as any violations of New Jersey's Unfair Claims Settlement Practices Act.

The New Jersey Insurance Fair Conduct Act is the product of a protracted decade's old battle to overhaul insurance New Jersey’s bad faith insurance law. Currently, aggrieved policyholders must seek relief with the Commissioner of Banking and Insurance.

The bill, Senate Bill No 2144, creates a private cause of action for first-party claimants regarding certain unfair or unreasonable practices by their insurer. Under the bill, a claimant may file a civil action against its insurer for an “unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy”; or any violation of the provisions of New Jersey's Unfair Claims Settlement Practices Act.

The Unfair Claims Settlement Practices Act defines certain activities as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance including, among other things, misrepresentations and false advertising of policy contracts, false information and advertising generally, defamation, unfair discrimination, unfair claim settlement practices and failure to maintain complaint handling procedures. The New Jersey Insurance Fair Conduct Act provides that, in any action filed pursuant to the new law, the claimant is not required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.

The New Jersey Insurance Fair Conduct Act also provides that, upon establishing that a violation of the provisions of the bill has occurred, the claimant shall be entitled to:

  • Actual damages caused by the violation;
  • Prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and
  • Treble damages.

Among other arguments, critics contend that the proposed legislation fails to define what constitutes the "unreasonable" delay or denial of a claim for benefits, which may lead to consumer confusion and unnecessary litigation. In addition for the addition of objective criteria, critics are also calling for more equitable measure of damages, citing the harshness of the treble damages penalty.  In response, proponents argue that the cause of action is fair and reasonable, and long overdue.

The bill is currently pending before the Assembly Financial Institutions and Insurance Committee. Given the significance of the changes, New Jersey policyholders and insurers should monitor the progress of the Insurance Fair Conduct Act and may wish to contact an experienced New Jersey insurance attorney with any questions.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Charles Yuen, at 201-806-3364.