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Insurance Law Bad Faith Update

On Jan. 18, Gov. Phil Murphy signed the New Jersey Insurance Fair Conduct Act (“IFCA”), which allows policyholders whose uninsured or underinsured motorist claims are “unreasonably denied” or “unreasonably delayed” to sue their carriers for up to three times the policy limit, pre- and post-judgment interest, attorney fees and litigation expenses.

In addition to claims of unreasonable delay or unreasonable denial of a claim, a claimant can now bring a private action for violation of the provisions the New Jersey Unfair Claims Settlement Practices Act (“UCSPA”), N.J.S.A. 17:29B-4. Previously, NJ Courts have held that there was no private right of action for violations of the UCSPA. The IFCA now creates such a right for any UCSPA violations, which include practices of:

  • misrepresentation of the available policy limit
  • failing to promptly investigate a claim
  • not making a good faith effort to settle a claim when liability becomes reasonably clear
  • compelling insureds to institute litigation to recover benefits.

Prior to the IFCA, the commissioner of the New Jersey Department of Banking and Insurance had sole enforcement power under the USCPA. Notably, enforcement actions commenced only upon a finding that violations occurred “with such frequency as to indicate a general business practice.” Now, the IFCA, expressly provides that “the claimant shall not be required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.”

With this law, New Jersey joins Pennsylvania, as well as many other states, in enacting bad faith statues. While carriers are likely familiar with Pennsylvania’s statute (2 Pa. C.S. § 8371), there a few key differences worth noting:

  • The IFCA is limited to UM and UIM coverage under automobile insurance policies, unlike Pennsylvania’s bad faith statute, which applies to a much broader range of insurance policies and coverages.
  • A claim under IFCA only requires proof of “unreasonable” behavior. A bad faith claim in Pennsylvania must show an insurer knew or recklessly disregarded its lack of a reasonable basis for denying benefits.

The IFCA raises a number of questions that will need to be answered by appellate courts, primarily, the definition of what actions constitute “unreasonable delay” or “unreasonable denial.” There are also open questions as to what burden of proof will apply, and governing the statute of limitations. Based on the text of the statute, it is unlikely that the IFCA applies retroactively. However, this will also need to be decided by courts in future cases.

Notwithstanding the undefined terms and questions as to how the IFCA will be applied, the law provides a new path for insureds against their auto insurers.

Our office will continue to monitor updates on the IFCA and is available to provide any necessary guidance. Please do not hesitate to contact us with any questions.