Bad Faith Claims Arising under Claims for UM/UIM Benefits Permitted under New Jersey Insurance Fair Conduct Act

Written by: Kelly P. Corrubia, Esq.

On January 18, 2022, Governor Murphy signed Senate Bill 1559,   the “New Jersey Insurance Fair Conduct Act” (“NJIFCA”). The NJIFCA creates an individual cause of action for bad faith arising from a claimant’s uninsured/underinsured motorist (“UM/UIM”). The Act permits an insured to file a lawsuit when that individual is “unreasonably denied a claim for coverage or payment of benefits, or who experiences an unreasonable delay for coverage or payment of benefits, under an uninsured or underinsured motorist policy by an insurer, or for violation of N.J.S.A. 17:29B-4 (the Unfair Claims Settlement Practices Act”).  The individual’s right to pursue damages through a civil lawsuit may be pursued regardless of any action by the Commissioner of Banking and Insurance pursuant to N.J.S.A. 17:29B-1.

Upon establishing a violation of the NJIFCA the plaintiff is entitled to “(1) actual damages caused by the violation which shall include, but  need to be limited to, actual trial verdicts that shall not exceed three times the applicable coverage amount; and (2) pre- and post-judgment interest, reasonable attorney’s fees, and all reasonable litigation expenses.”

The NJIFCA also prohibits the insurer from passing a rate increase onto the consumer or policy holder as a result of compliance with the Act, and dissemination of “inaccurate or misleading information to policy holders or consumer” is prohibited by the Act. The Act further states that the Commissioner “may determine” whether an insurer’s rates are constitutionally adequate.

The NJIFCA is a significant change to New Jersey’s bad faith law. The law does not define the term “unreasonable” for determining when a denial of a claim would give rise to a cause of action under the Act, nor does it define what constitutes an “unreasonable delay” for payment of benefits or for coverage. It is anticipated that the NJIFCA will generate new lawsuits over what constitutes bad faith in the context of UM/UIM coverage, as evident by similar laws in other jurisdictions. Insurers should confirm they are in compliance with N.J.S.A. 17:29B-4, given the  potential for liability in a civil suit for an award of damages equivalent to treble the policy limits, as well as attorneys’ fees

A copy of the NJIFCA can be found here.