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NJ Governor Phil Murphy Signed New Law Regarding Bad Faith Standard for UM/UIM Claims

According to Goldberg Segalla of Insurance Journal, New Jersey Governor Phil Murphy signed the New Jersey Insurance Fair Conduct Act into law on January 18, 2022, which was effective immediately. The law “permits individuals injured in motor vehicle accidents to pursue ‘bad faith’ lawsuits against insurers and anyone ‘responsible for determining claims made under the policy’ for unreasonably denying or delaying coverage or payment of UM or UIM benefits.” As if navigating these claims wasn’t already difficult enough.

Segalla states that previously, “parties pursing a bad faith claim against an insurer relating to payment of UM/UIM benefits must prove that the insurer lacked a ‘fairly debatable’ basis for denying or delaying payment of the claim, which generally requires proof that the carrier lacked a factual or legal basis for its position.”

So what has changed?

  • Now, according to Segalla and the new legislation, “an injured party seeking UM/UIM coverage could sue the insurer or the company responsible for determining claims under the insurer’s policies, for ‘an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy,’ or for violating statutes prohibiting unfair or deceptive practices.”

  • “The legislation provides no guidance on what constitutes an ‘unreasonable’ delay or denial. Presumably, it will be for the state’s courts to evaluate whether the denial or delay was unreasonable, and for the courts to determine whether to apply a standard other than the fairly debatable standard when assessing an insurer’s bad faith liability.”

  • “The legislation would also allow a private cause of action against an insurer or party responsible for determining claims under the policy based on alleged violations of New Jersey’s Insurance Trade Practices Act, which prohibits unfair competition or unfair or deceptive acts and practices in the business of insurance.”

  • “The legislation would allow a successful plaintiff to recover his or her actual damages, subject to a cap of the insureds’ potential damages at three times the applicable “coverage amount,” along with pre- and post-judgment interest and reasonable attorney fees and reasonable litigation expenses. Additionally—and presumably in recognition of the increased costs to insurers presented by the legislation—the law would prohibit insurers from passing on rate increases to policyholders as a result of complying with the new legislation.”

We’re curious. Now that we are a couple months into the new legislation, how has it been affecting your day-to-day UM/UIM claims handling?

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