New Jersey law gives new teeth to plaintiffs' insurance claims
Previously, only the state Department of Banking and Insurance had authority to enforce unfair claims settlement practices in New Jersey.
One year after a New Jersey law went into effect allowing individuals to sue their auto insurance companies for unreasonably denying or delaying payment benefits, some litigators say the balance of power between policyholders and insurers has shifted.
Appellate courts have yet to weigh in on some finer points of the New Jersey Insurance Fair Conduct Act, such as what conduct constitutes a showing of bad faith by an insurance company.
But the bill has already helped level the playing field between policyholders and insurers, some observers said.
Previously, only the state Department of Banking and Insurance had authority to enforce unfair claims settlement practices in New Jersey.
Now, IFCA allows individuals bringing first-party motor vehicle accident claims against their uninsured and underinsured motorist policies and recover damages of up to three times the policy limit, plus attorney fees.
When the IFCA was enacted, the insurance industry predicted a deluge of claims filed under the new law, and it’s unclear if that has materialized.
Many lawyers file bad-faith claims routinely, while others do so sparingly or not at all, litigators said.
But the law has changed the relationship between policyholders and insurers, said Frank Lazzaro, who represents plaintiffs in auto injury suits at Lutz, Shafranski, Gorman, Mahoney & Lazzaro in New Brunswick.
Insurance companies “have a fiduciary duty to negotiate in good faith — that’s always been the law. What the legislation has done has put some teeth into an insurance claim when the insurance company does not comply with their fiduciary duty,” Lazzaro said.
Before the IFCA became law, when insurance companies were hit with a verdict that significantly exceeded the coverage limit on the insurance policy, the judge could be expected to mold the verdict down to the policy limit, Lazzaro said.
“Now, there’s an additional deterrent to them not negotiating in good faith,” he said.
But insurance companies face risks under the new law that go beyond money.
When a bad-faith claim is filed along with uninsured or underinsured motorist claims, it is typically severed, put on hold and reactivated in the event the plaintiff prevails on the primary claim, litigators said.
If the plaintiff succeeds on the UM/UIM claim, the plaintiff’s lawyer begins scheduling depositions of the insurance company’s claims personnel, who are asked about their policies and practices.
It’s that application of the new law that seems to vex insurance companies the most, since they are reluctant to have their inner workings discussed publicly, Lazzaro said.
“The fear for these insurance companies is that once you get a qualifying verdict, now you can have a plaintiffs attorney such as myself go and start to depose their representatives to see how they evaluate the claim. That gives them a lot of pause,” Lazzaro said.
The IFCA could use some clarification from the Legislature or a higher-level court about some points, such as retroactive application, but it’s nonetheless helped consumers, said Oliver T. Barry of Barry, Corrado & Grassi in Wildwood who has represented policyholders bringing bad-faith claims.
“Going forward, that there’s a remedy for bad faith, and that keeps everyone honest in the uninsured, underinsured benefits context,” Barry said. “I think that is a success. Because of the length of time that litigation takes, it may not be felt overnight. But I don’t think that takes away from the impact of the statute and the remedy it provides.”
Another attorney representing clients with auto injuries, Louis DeVoto of Rossetti DeVoto in Cherry Hill, said he had not yet resorted to bringing claims under the IFCA.
“But that may be because the statute has made carriers more aware of the need to settle claims in a timely and fair manner,” DeVoto said.
Christine O’Brien, president of the Insurance Council of New Jersey, an industry group, disputed the notion that insurance companies changed the way they review claims in light of the new law. “[I]nsurers continue to thoroughly review, investigate and pay claims, regardless of the NJIFCA,” she said.
O’Brien added that, based on her conversations with New Jersey attorneys, “ICNJ was correct in its warning that private causes of action for first-party claimants in UM/UIM cases would exponentially increase and become the norm. Coupled with two other recent private passenger auto laws—the mandatory disclosure of policy limits and the increase in minimum liability limits—it’s safe to say the result is more litigation that will lead to increased costs and drive up premiums.”
Bad-faith counts have become “pro forma” in new UM/UIM claims, which is “an unfortunate occurrence in that IFCA-related motions now consume scarce judicial resources but also an expected result of the legislation,” C. Robert Luthman, president of the New Jersey Defense Association, said.
But no body of law on the merits of such claims has developed yet, Luthman said.
“Widespread litigation on the merits of IFCA claims has not yet ripened, let alone reached the point of appellate court review to provide needed precedential interpretation of the statutory language,” Luthman said.
Luthman, of Weir Attorneys in Ewing, said an often-recurring issue is whether the statute applies retroactively or prospectively. Chief U.S. District Judge Renee Marie Bumb issued a December 2023 ruling in Roach v. Allstrate Insurance that the statute did not apply to a UM/UIM case pending before the statute took effect. But in the longer term, the big issue to be decided is what is the standard for determining if an insurer’s conduct was a reasonable or unreasonable denial of claim, Luthman said.
The insurance bad-faith statute is still maturing, and more time is needed to see what the burden of proof is for a claimant to succeed, said Bryan Shay, an attorney at Post & Schell in Philadelphia who represents insurance companies against allegations of bad faith. But that will take a claim that survives a motion to dismiss based on a nonretroactivity finding, he said.
He said, “I just think there just hasn’t been enough time yet for the types of conduct and the types of claims that would survive a motion to dismiss on retroactivity grounds to wind their way through the system.”
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