Newly signed bill opens the door for bad faith suits against auto insurers providing UM and UIM benefits
On January 19, 2022, New Jersey’s Governor, Phil Murphy, passed S.B. 1559 into law, referred to as the New Jersey Insurance Fair Conduct Act (“IFCA”). The IFCA creates a private cause of action for injured motorists to sue insurance companies that “unreasonably” deny or delay paying claims for uninsured (“UM”) or underinsured motorist (“UIM”) coverage.
IFCA provides that a “claimant” – meaning, “an individual injured in a motor vehicle accident and entitled to [UM] or [UIM] coverage of an insurance policy asserting an entitlement to benefits owed directly to or on behalf of an insured under that insurance policy” – may now file a civil action against an insurer who has:
- unreasonably denied a claim for coverage or payment of benefits;
- unreasonably delayed providing coverage or paying benefits; or
- violated the New Jersey Unfair Claims Settlement Practices Act, N.J.S.A. § 17:29B-4 (“UCSPA”).
With respect to the first two prongs, the IFCA does not define the term “unreasonable,” which was the basis for the main objection by groups that opposed passage of this legislation. This lack of clarity will necessarily have the effect of leaving it to New Jersey courts to decide, over time and through litigation, the true scope of this new law. Preliminarily, however, the requirement that claimants only need to prove “unreasonable” conduct builds in a relatively low threshold for new bad faith lawsuits against UM/UIM carriers.
With respect to the third prong, the IFCA expressly permits claimants seeking UM/UIM benefits to bring bad faith actions for violations under New Jersey’s UCSPA, which sets out various “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.” Such acts or practices include, among other examples, misrepresenting facts about coverage and its limits, refusing to pay claims without conducting a reasonable investigation, failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed, and not attempting to effectuate prompt, fair, and equitable settlements of claims in good faith.
Creation of a private right of action in this context is particularly significant because, previously, only the Commissioner of the New Jersey Department of Banking and Insurance had enforcement power under the UCSPA, and only where violations occurred “with such a frequency as to indicate a general business practice.” In addition to creating a private cause of action in the UM/UIM context, the IFCA removes prior limitations, such that claimants are now “not . . . required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.”
Violations of the IFCA will entitle UM/UIM claimants to recover actual damages, including, but not limited to, trial verdicts up to three times the applicable coverage amount, pre- and post-judgment interest, litigation costs, and attorneys’ fees.
The IFCA comes at a time when other states around the country have attempted – and some have succeeded – in enacting new bad faith laws designed to generally hold insurers to higher standards and expose them to broader bad faith liability. The IFCA is the most recent iteration of this trend.
Again, and importantly, the IFCA is limited to the context of claims under UM and UIM policies. While it is not so sweeping as to impact all (or certain other) types of insurance, even its limited application should be carefully noted in the insurance industry. This is especially due to the fact that the term “insurer” is broadly defined in the IFCA to mean “any individual, corporation, association, partnership or other legal entity which issues, executes, renews or delivers an insurance policy in this State, or which is responsible for determining claims made under the policy.” Arguably, the IFCA could be interpreted to extend to individuals, i.e., individual UM/UIM claim adjusters, among others involved in the chain of “determining claims” under UM and UIM endorsements. Again, how that language is ultimately interpreted will be left to New Jersey’s courts to decide.
Despite the various unknowns and open questions left in the wake of this new law, what can be expected, at least in the short term, is a spike in bad faith insurance claims under the IFCA in New Jersey. The IFCA not only provides a legal mechanism, but also, a streamlined framework for claimants, led by New Jersey’s Plaintiffs’ Bar, to bring bad faith lawsuits against first-party insurers in the automobile context. Moving forward, and especially until New Jersey courts have time to address some of the vagueness of the law, insurers should remain vigilant in their practices and ensure that their claims handling protocols are sufficient to pass muster under the IFCA.