Scales of justice.
In October of 2012, Super Storm Sandy hit the State of New Jersey very hard causing billions of dollars in property damage along the state’s coast but also inland along its path. Homeowners seeking to repair and rebuild their homes found themselves however in disputes with their insurance companies over values and coverage for the storm damage. That experience with the state’s insurance companies has spurred new legislation attempting to address the “bad faith” of insurance companies. The insurance carriers are fighting back against the law.
Although New Jersey has a “common law” cause of action for “bad faith”, the burden of proof is very high because two requirements must be met, (1) the homeowner must prove that the insurance company was unreasonable in its delay or denial of a claim, AND (2) that the insurance company knew that it was acting unreasonably.
The bad faith standard set forth above was stated in a 1993 New Jersey Supreme Court case entitled Pickette v. Lloyd’s where the highest court in New Jersey held that an insurance carrier could defeat a bad faith claim by simply showing that the existence of coverage for a claim was “fairly debatable”. The “fairly debatable” standard gives insurance companies a lot of leeway in denying or reducing payment amounts.
The other difficulty currently in litigating “insurance bad faith claims” is that you can only recover actual damages tied to the insured’s breach. The new proposed law would allow actual damages, then triple damage damages (“treble damages”) for the bad faith, and attorney fees.
Currently, insurance carriers have little incentive to review their policies concerning denying insurance coverage and complaints that their adjuster’s estimates of damages are low because even if there is litigation, the insurance carrier only has to pay the actual damages it denied. A loss by an insurance carrier, under the new law, would result in a significantly higher loss to the insurance company. The new proposed law would provide a deterrent to bad insurance carriers from denying claims and/or offering payments less than the actual value of the loss. It would also put insurance carriers who are paying claims without “bad faith” to continue to do so.
On June 7, 2018, the New Jersey State Senate voted 21-14 to approve the law entitled the “New Jersey Insurance Fair Conduct Act.” The Act is being considered by the New Jersey General Assembly. The proposed new Act is before the General Assembly’s Financial Institutions and Insurance Committee and has not been released to the General Assembly for a vote. If passed, it appears Governor Phil Murphy would sign the bill. The proposed law is opposed by insurance carriers who say that rates will rise if the law is passed. The law is endorsed by consumer rights groups and attorneys who represent individuals in insurance disputes and accident cases. Stay tuned for updates on this proposed law.