Effective Immediately, NJ Motorists Can Sue Insurers for Unreasonable Delay or Denial of UM/UIM Benefits
Knowledge

Effective Immediately, NJ Motorists Can Sue Insurers for Unreasonable Delay or Denial of UM/UIM Benefits

Key Takeaways

  • The New Jersey Insurance Fair Conduct Act has now been signed into law.

  • The law allows bad faith lawsuits to be brought against an “insurer” for an unreasonable delay or denial of a claim for payment of UM or UIM benefits.

  • Given its broad definition of “insurer,” plaintiffs could name individual adjusters and TPAs as defendants in their lawsuits.

 

New Jersey Gov. Phil Murphy has now signed into law the New Jersey Insurance Fair Conduct Act, which takes effect immediately. The law allows an individual injured in a motor vehicle accident to sue its “insurer” directly for an unreasonable delay or an unreasonable denial of uninsured motorist (UM) or underinsured motorist (UIM) benefits. The law does not define—or provide any guidance on—what constitutes an unreasonable delay or an unreasonable denial of a claim. Under the law a successful plaintiff can recover up to three times the amount of the benefits owed, pre- and post-judgment interest, attorneys’ fees, and litigation expenses. The statute also allows insureds to sue an “insurer” for 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 term “insurer” is broadly defined to mean “any individual, corporation, association, partnership or other legal entity that issues, executes, renews or delivers an insurance policy in [New Jersey], or which is responsible for determining claims made under the policy.” So, given the broad language, plaintiffs could name individual adjusters and TPAs as defendants in their lawsuits.

Under existing New Jersey law, a claimant pursuing a claim for the breach of the duty of good faith and fair dealing for failure to pay benefits or delaying payment must prove the insurer lacked a reasonable basis for its position and knew or recklessly disregarded its lack of a reasonable basis. This so-called “fairly debatable” standard requires the insured to prove it is entitled to summary judgment as a matter of law on its claim for coverage. This new law may create a different standard—whether the denial or delay was unreasonable—and it will be up to New Jersey courts to determine whether to apply the fairly debatable standard and the unreasonable standard in the same fashion.

For a further discussion of the New Jersey Insurance Fair Conduct Act please read our previous alert; New Jersey Legislature Poised to Modify Common Law Bad Faith Standard for Uninsured and Underinsured Motorist Claims.

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