Wade Clark Mulcahy LLP

<p style="text-align: justify;">On January 18, 2022, Governor Phil Murphy signed into law the New Jersey Insurance Fair Conduct Act.  The <a href="https://www.wcmlaw.com/wp-content/uploads/2022/01/Act.pdf">Act</a> establishes a private cause of action for first-party claimants against a UIM insurer for “unreasonably” denying or delaying claims.  It also allows a claimant to sue the insurer if the insurer violates any provision of New Jersey’s Unfair Claims Settlement Practices Act which governs “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” which includes “unfair claim settlement practices.”</p>
<p style="text-align: justify;">Notably, the Act does not define what “unreasonable” conduct is.  Thus, courts will be left to decide that issue.  However, the statute provides 15 examples of “unfair claim settlement practices’ which include misrepresentation of the policy limit, failing to promptly investigate a claim, not making a good faith effort to settle a claim when liability becomes reasonably clear, and compelling insureds to institute litigation to recover benefits.</p>
<p style="text-align: justify;">A successful insured will be entitled to recover actual damages, including actual trial verdicts which shall not exceed three times the applicable coverage amount, pre and post judgment interest, reasonable attorneys’ fees and reasonable litigation expenses.</p>
<p style="text-align: justify;">The Act essentially creates a statutory “bad faith” cause of action.  In New Jersey, bad faith claims have traditionally been grounded in the common law and elaborated upon by New Jersey judges over the past several decades.  The statute serves to penalize insurers for certain types of conduct in handling claims for uninsured and underinsured motorist coverage.</p>
<p style="text-align: justify;">The Act leaves many questions unanswered which will lead to significant litigation.  It will be left to the courts to decide what “unreasonable” conduct actually is, and it further straddled the gay between subjective and objective tests.  Courts will have to decide how much time amounts to “unreasonable delay” and what an “unreasonable denial of a claim for benefits” is.  Perhaps most importantly, courts will have to determine when a difference of opinion between an insurer and a claimant as to the value of a UM/UIM claim is unreasonable.</p>
<p style="text-align: justify;">Thus, insurers should consider reviewing their claims handling practices for objective reasonableness.  Insurers should also consider educating their UM/UIM adjusters on the new law. If interested in a CLE on this topic, please contact WCM.</p>
Thanks to Mike Noblett for his contribution to this article.