S1559, legislation that would expand policyholders’ ability to bring bad faith claims against their automobile insurers, was released from the Senate Commerce Committee on Thursday, January 21, 2021, with amendments.
The sponsor of the bill, Senator Nicholas Scutari, testified in support of this legislation. Senator Scutari generally claimed that policyholders have no recourse against their auto insurers when they delay payment or offer unreasonably low settlements on UM/UIM claims (i.e., coverage for auto accidents involving uninsured or underinsured motorists). To remedy this purported problem, S1559 allows policyholders to bring private civil actions against their auto insurers for any “unreasonable delay or unreasonable denial of a claim for payment of [UM/UIM] benefits under an insurance policy” or violation of N.J.S.A. 17:29B-4 (which lists prohibited insurance trade practices that are currently enforced by the New Jersey Department of Banking and Insurance).
S1559 does not define an “unreasonable” delay or denial, creating uncertainty that must be resolved through litigation. The bill does state that claimants are not required to prove that an insurer’s actions were part of a “general business practice”. Most important, though, the initial draft of the bill provided that a successful claimant is entitled to “actual damages caused by the violation including, but not limited to, actual trial verdicts” and “prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses”. At the outset of the hearing, however, Senator Scutari announced that the sponsors would be amending the bill to remove entitlement to interest, attorneys’ fees and litigation expenses.
NJCJI was among several representatives of the business community testifying against S1559. Insurance industry representatives were quick to point out that, contrary to Senator Scutari’s claim, the New Jersey Supreme Court recognized a cause of action for policyholders against carriers for bad faith delay or denial of claims. See Pickett v. Lloyd’s, 131 N.J. 457, 621 A.2d 445 (1993). Insurance industry representatives also testified that the bill would result in a significant increase in bad faith litigation due to its broad and ill-defined standards for violations along with the strong financial incentive for plaintiffs’ lawyers embedded in its remedy (i.e., actual trial verdicts often far exceed UM/UIM policy limits).
NJCJI’s President, Anthony Anastasio, then testified that the New Jersey Supreme Court and its Civil Practice Committee already carefully analyzed the exact issue raised by this bill. See Wadeer v. New Jersey Mfrs. Ins. Co., 220 N.J. 591, 110 A.3d 19 (2015). As a result of that analysis, the Court amended the Offer of Judgment rule to incentivize prompt payment of legitimate UM/UIM claims. Notably, the Civil Practice Committee rejected other penalties, such as fee shifting on all first-party claims, out of fear of generating distortions in the insurance market that could result in higher premiums. NJCJI argued that the Supreme Court’s well-crafted solution to this issue effectively struck the right balance between deterring delay and unnecessary litigation, while protecting carriers’ ability to investigate questionable claims and hold policies to their terms.
The Senate Commerce Committee voted in favor of releasing the bill, 3-2, on party lines. The bill has yet to proceed in the Assembly. Please email Anthony if you would like to discuss this legislation further.