The Potential Impact of the New Jersey Insurance Fair Conduct Act on UM/UIM Insurers

On January 18, 2022, NJ Governor Phil Murphy’s signed bill S1559/A1659 known as the New Jersey Insurance Fair Conduct Act. Under the Act, an insured who 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 (“UM”) or underinsured motorist (“UIM”) policy by an insurer, regardless of any action by the Department of Banking & Insurance commissioner, may file a civil action in a court of competent jurisdiction against his or her automobile insurer for:

(1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or

(2) any violation of the provisions of N.J.S.A. 17:29B-4. Unfair methods of competition, unfair, deceptive acts, practices

The first issue is the legislation does not define an “unreasonable delay” or “unreasonable denial.” Those phrases will likely be left open to interpretation to the courts, and judges will likely provide differing standards. The statute does not incorporate the fairly debatable standard in NJ for first-party bad faith claims or the good faith and fair dealing standard in the third-party context.

Second, now a plaintiff has a private cause of action for a single violation of the Unfair Claims & Settlement Practices Act, which includes:

(a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;

(b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;

(c) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;

(d) Refusing to pay claims without conducting a reasonable investigation based upon all available information;

(e) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

(f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;

(g) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;

(h) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;

(i) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;

(j) Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made;

(k) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;

(l) Delaying the investigation or payment of claims by requiring an insured, claimant or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

(m) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;

(n) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;

(o) Requiring insureds or claimants to institute or prosecute complaints regarding motor vehicle violations in the municipal court as a condition of paying private passenger automobile insurance claims.

Third, the legislation contains penalty provisions:

Upon establishing that a violation of the provisions of this act has occurred, the plaintiff shall be entitled to (1) actual damages caused by the violation of this act which shall include, but need not 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 reasonable litigation expenses.

So, an insured could now recover damages up to 3 times their UM/UIM limit. Think about it: A $250,000 per person UM/UIM limit now becomes a $750,000 limit based upon a trial verdict up to that amount.  A $500,000 combined single limit could be become $1,500,000 based upon a trial verdict. These amounts are above amounts offered by most carriers, and for which the insurer did not collect the appropriate premium to cover the risk. It also allows the insured to circumvent a state cap that limits an insured from requesting UM/UIM limits that exceed one’s liability coverage limits.  See N.J.S.A. 17:28-1.1(b).    

Plus, the insured can collect pre-and-post judgment interest, attorney’s fees and costs. 

Attorneys at Hoagland Longo are prepared to review policy claim procedures and help clients minimize exposure under the new law. If you have any questions on the New Jersey Insurance Fair Conduct Act and need help with handling a claim under the new legislation, please contact Frank J. Caruso and Jack Simons or call us at 732-545-4717.