Auto insurers brace for tidal wave of lawsuits in New Jersey
Just a few days after the bill was signed, one major insurance company was hit with two suits for alleged bad faith.
A New Jersey statute allowing lawsuits accusing auto insurance companies of bad faith is sure to shake up the state’s personal injury landscape. Lawyers representing auto accident victims say the new law allowing suits over delayed insurance payments will level the playing field for injury claims. But the insurance industry and defense lawyers, for their part, predict a deluge of suits and escalating premiums.
On Jan. 18, Gov. Phil Murphy signed a bill allowing policyholders whose uninsured or underinsured motorist claims are unreasonably denied or delayed to sue for three times the policy limit, plus pre- and post-judgment interest, attorney fees and litigation expenses.
The bill faced vocal opposition from insurance companies.
The legislation doesn’t provide much guidance about what sort of infractions by insurance companies are subject to suits, and some lawyers think the courts will have to flesh out that issue. A much-debated aspect of the bill was whether insurance companies will be allowed to raise premiums based on higher expenses caused by the new law.
Just a few days after the bill was signed, one major insurance company was hit with two suits for alleged bad faith in New Jersey, said Christine O’Brien, president of the Insurance Council of New Jersey, an industry group.
The insurance industry is bracing for a flood of litigation, and it anticipates rising costs of complying with the law will trigger a showdown with state regulators over an increase in premiums.
“The ink is barely dry” on the bill, O’Brien said. “We’re assuming almost every [uninsured or underinsured motorist] claim will have a bad-faith action attached to it.”
If predictions of a high volume of suits prove true, ”that will drive up costs because you’re going to have claims being settled for more than they’re worth,” O’Brien said.
The insurance industry asserts that its companies are dealing in good faith and tendering offers to settle disputes for the value of the claim.
“If you threaten other actions, you are forcing carriers to pay an inflated amount,” O’Brien said.
‘What constitutes a violation?’
The New Jersey Defense Association agreed, saying the new law has “ill-defined standards of ‘unreasonable delay’ and ‘unreasonable denial,’ which will lead to excessive litigation and ultimately delay settlement of claims and increase costs.”
The group said in a statement issued by its president, Ryan Richman of McCarter & English, that “distinguishing between actionable misconduct and mere second-guessing will require the courts to develop a standard which could have been clearly set forth in the act. It will take years for that issue to make its way through the trial and appellate courts before ultimately being settled by our state Supreme Court.”
The New Jersey Defense Association said the influx of new suits filed after passage of the act “will tax our court system and will ultimately give rise to ancillary costs that will be borne by citizens throughout the state. In just the short time since the law’s enactment, carriers have already received increased demands from plaintiff’s counsel with no evidence of any change in their client’s damages, which demonstrates what opponents of the legislation warned against—that the law is a tool to pressure carriers for increased awards or risk litigating a simple negligence standard.”
Bryan Shay, an attorney at Post & Schell in Philadelphia who represents insurance companies against allegations of bad faith, thinks the opportunity for a prevailing plaintiff to win attorney fees under the new statute will generate suits.
“I think you’ll see an uptick in litigation because it does give insureds more options for pursuing claims that the plaintiffs believe were unreasonably denied. One of the questions the courts will have to wrestle with is what constitutes a violation: How egregious does it have to be?” said Shay.
‘More of a deterrent than a weapon’
But John Sakson, a plaintiff-side personal injury lawyer at Stark & Stark in Lawrenceville, New Jersey, doubts that the new law will trigger a large number of new suits. “I’m hoping this is a remedy that’s reserved for unusual circumstances,” he said.
Sakson adds that anecdotal evidence from California, which has a similar law, suggests insurance companies will be more conciliatory in settling suits in light of the new statute.
“Hopefully, it’s more of a deterrent than a weapon. That’s how I’d like to see it,” he said.
Louis DeVoto, a personal injury lawyer at Rossetti, DeVoto, Medori & Baxter in Cherry Hill, says the question of whether the new law will trigger a lot of new suits “depends on how the insurers conduct their business.”
DeVoto said the purpose of the new law is to prevent insurance companies from sitting on cases. Under the old rules, delays would eat away at the injured party’s recovery because litigation costs are deducted from the insurance proceed, he said.
DeVoto doubts that insurance premiums will increase as a result of the new law. The problem that gave rise to the new law is that claims were being unreasonably delayed, not that they were denied, said DeVoto. He said that “if rates go up because they have to pay legitimate claims, that’s an oxymoron. It’s a hard pill to swallow,” he said.
Darren Kayal, of Rudolph & Kayal in Manasquan, New Jersey, who represents policyholders in bad-faith insurance disputes, agreed that the definition of an unreasonable denial or delay in paying benefits will be a significant source of litigation for the next several years. But Kayal said the 1993 New Jersey Supreme Court ruling in Pickett v. Lloyd’s, which provides guidance in evaluating insurance bad-faith claims, still applies.
“There is nothing in the statute to suggest that there should be any change in the current practice of severing and staying bad-faith claims until the resolution of the underlying UM/UIM claim,” Kayal said. “Claims brought under the New Jersey Insurance Fair Conduct Act should be stayed for purposes of trial and discovery, just like any other bad-faith claim.”
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