On December 10, the Assembly Financial Institutions and Insurance Committee held an informational hearing on A231, which would create a private cause of action for bad faith in settlement of certain insurance claims. NJCJI testified against the bill, which would have devastating effects for New Jersey’s business community and raise insurance premiums for most New Jersey residents.
We appreciate sponsors’ concern with incentivizing fair and efficient behavior from both carriers and claimants when settling cases. However, expanding the availability of bad faith remedies to individual claims arising out of declared natural disasters would not improve the efficiency or fairness of claims settlements. Rather, it would make claims settlements less predictable and more expensive, and distort the existing incentive structure to the particular detriment of policy holders in areas prone to natural disasters.
The challenge of regulating insurance is striking the appropriate balance of incentives. We want to ensure that policy holders are not subject to undue delay or unnecessary litigation, while at same time protecting carriers’ ability to investigate questionable claims and hold policies to terms on which they are drafted.
That balance is critical, because shifting too far towards deterring carriers from policing the terms of insurance contracts is not a benefit to consumers. Policies are priced according to their terms, not just as drafted, but as they are likely to be enforced. If policy limits are not enforced in a predictable fashion, then affordable policies with set policy limits will not be among the policies available for purchase.
If you have questions or comments about this legislation, please contact Alida Kass, NJCJI’s Chief Counsel.