Friday, 21 January 2022 08:49

New Jersey Enacts Insurance Bad Faith Statute for Auto Insurers

Written by Troutman Pepper, for JD Supra


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New Jersey has enacted an insurance bad faith statute that will penalize insurers for certain types of conduct in handling claims for uninsured and underinsured motorist coverage as the result of auto accidents.

The new law allows prevailing insureds to recover extra-contractual damages, up to three times the policy limit, as well as attorney's fees, meaning automobile insurers in New Jersey now face substantially more risk in litigation.


Gov. Phil Murphy signed the New Jersey Insurance Fair Conduct Act (IFCA) into law Jan. 18. Effective immediately, the IFCA allows claimants injured in motor vehicle accidents and entitled to uninsured (UM) or underinsured motorist (UIM) coverage---benefits due where there is either no bodily injury coverage at all on the vehicle responsible for the accident, or where that vehicle's policy limit is insufficient to cover all of a claimant's injuries---to file suit against an insurer who has:


1) "unreasonably denied a claim for coverage or payment of benefits,"
2) unreasonably delayed "coverage or payment of benefits," or
3) violated the New Jersey Unfair Claims Settlement Practices Act (UCSPA), N.J.S.A. § 17:29B-4, which governs "unfair methods of competition and unfair and deceptive acts or practices in the business of insurance."


Importantly, "deceptive acts or practices in the business of insurance" under the UCSPA include "unfair claim settlement practices." It sets forth 15 examples of such practices, ranging from the misrepresentation of the available policy limit, to failing to promptly investigate a claim, to not making a good faith effort to settle a claim when liability becomes reasonably clear, to compelling insureds to institute litigation to recover benefits.


Previously, the commissioner of the New Jersey Department of Banking and Insurance had sole enforcement power under the UCSPA, exercised only...

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