New Jersey's Insurance Fair Conduct Act signed into law
Some policyholders in New Jersey already received notice that the law may increase car insurance premiums drastically.
New Jersey Governor Phil Murphy enacted an insurance bad faith statute for auto insurers. The bill, titled “New Jersey Insurance Fair Conduct Act,” establishes a private cause of action for first-party claimants regarding certain unfair, discriminatory or unreasonable practices by their insurer.
The original version of the bill applied to all lines of insurance, but it has since been pared down and currently only applies to underinsured and uninsured motorists (UM/UIM) claims.
Under the law, a claimant can file suit against its automobile insurer and related parties for:
- An unreasonable delay or unreasonable denial of a claim for payment; or
- any violation of the provisions of section 4 of P.L. 1947, c. 379 (C. 17:29B-4) [the New Jersey Unfair Claims Settlement Practices Act].
Under the above-mentioned New Jersey Unfair Claims Settlement Practices Act, a private right of action did not exist, instead, the state could take administrative action against the insurer for violations of the act in cases where the violations constituted a “general business practice.”
The law creates a private cause of action under the act and does not require a private claimant to prove that the insurer’s actions were at such a high frequency that they indicate a “general business practice” as is required of the state. An insured must only establish that a violation has occurred, and then “shall” be entitled to actual damages caused by the violation, prejudgment interest, reasonable attorney’s fees and all reasonable litigation expenses.
The bill fails to define the term “unreasonable,” but defines first-party claimants as an individual 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 insurance policy.” The bill also caps damages at three times the coverage limit, plus pre- and post-judgment interest, and reasonable attorney fees and expenses. The measure also forbids insurers to pass rate increases to policyholders for violations.
Triple damages, plus attorneys’ fees, litigation expenses, and the amount of time and resources it would take to argue individual claims in court create an incentive for an insurance company to settle suits out of court. This could correspondingly increase the amount of compensation that trial attorneys seek in settlements.
Policyholders notified of potential consequences on rates
Geico has already sent out notifications to their New Jersey customers, warning them that the bill may potentially increase car insurance premiums drastically. The Coalition Against Insurance Fraud has stated that the bill is “poorly drafted” and has opposed this bill due to the lack of necessary definitions and the imposing of personal lawsuit liability. Other critics of the Bill argue that it turns a law that was designed to deter “general business practices” that negatively affect insurers, into a weapon to punish violations on a case-by-case basis, which was not the original intent of the law.
UM/UIM motorist claims come into play when an insured has an accident with another party who is at fault for the accident but does not have enough insurance to cover the cost of repairs/injuries related to the claim, or is altogether uninsured. Therefore the injured party files against his own insurer for the loss. The insured is the one who selects the limits for the coverage; if an insured has sufficient limits, this should rarely come into play. However, many people maintain limits that may meet state requirements but aren’t sufficient in a moderate to severe accident.
Edited to remove an inaccurate definition.
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