Legal Update for Insurance Services
New Jersey Auto Insurers, Get Ready for First-Party Bad Faith!!!
New Jersey is poised to pass its first-party bad faith statute. After passing the Senate on Friday 21-9, it only needs to pass the Assembly. If approved by the Assembly, New Jersey insurers should be prepared to defend their claims handling or face the award of attorney’s fees, interest and costs. Of importance, unlike earlier versions, the Bill only applies to UM and UIM claims and creates a separate cause of action for the following conduct:
- Unreasonable denial or delay;
- Any violation of the Unfair Insurance Practices Act without having to establish a pattern or practice of the violation.
If a violation is found, the Bill sets forth the following recoverable damages:
- Actual damages;
- Prejudgment interest, reasonable attorney’s fees and all reasonable litigation expenses.
What is especially troubling about the Bill as drafted is that the award of extra-contractual damages is not left to the discretion of the court, but sets forth that the insured “shall be entitled to” extra-contractual damages upon violation of the Unfair Insurance Practices Act. As drafted, if a violation of the Unfair Insurance Practices Act is found—an Act designed only to regulate general business practices and not small violations on individual claims files—the insured “shall” be entitled to extra-contractual damages. So, under the Bill, a small violation, without proof of “general business practices,” will result in extra-contractual damages.
Accordingly, if passed into law, the Act would cause a sea-change in UM/UIM litigation in New Jersey, as far as an increase in filings and the size of verdicts/settlements. We will monitor this situation closely and keep our clients advised of all developments.
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