Bad Faith After Super Storm Sandy Spurs New Law
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. (more…)