Three and a half years ago, we reported on the New Jersey Senate proposal for the Insurance Fair Conduct Act (IFCA). A link with our detailed discussion on the proposed law can be found here.
Yesterday (January 18, 2022), a similar version of the IFCA was signed into law by Governor Murphy, limited to uninsured and underinsured motorist claims. A copy of the final version of the new law can be found here.
In June 2018, we observed the numerous areas where the proposed statutory language could use some clarification, e.g., regarding what constitutes reasonableness (subjective vs. objective); how New Jersey’s common law on bad faith and reasonableness informs, if at all, the language in the new statute; burden of proof; and statute of limitations. The IFCA’s final version still has many of the same ambiguities, which will now take years for the courts to clarify; and if New Jersey’s experience maps Pennsylvania’s in fleshing out a bad faith statute, this could mean decades. There is also the issue of whether this law should apply retroactively.
We note the following points, though our readers should obviously review the act in detail:
Under IFCA section 3.a., the statute provides that “a claimant, who is unreasonably denied a claim for coverage or payment of benefits, or who experiences an unreasonable delay for coverage or payment of benefits, under an uninsured or underinsured motorist policy by an insurer may … file a civil action in a court of competent jurisdiction against its automobile insurer for:
(1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or
(2) any violation of the provisions of section 4 of P.L.1947,38 c.379 (C.17:29B-4). (We set out below the text of 17:29B-4(9), governing Unfair Claim Settlement Practices.)”
Under section 3.a.(1) of this new law, it appears an insured/plaintiff only needs to prove negligence/unreasonableness. It is unclear whether this is objective, subjective or some mix. It would seem there should be some subjective element, beyond mere negligence, for a statute that is imposing extra punishment on an insurer (per section 3.d., discussed below), but this issue will need to be decided by the courts and it may be a few years before we get an appellate decision on the issue.
Under section 3.d., a successful plaintiff “shall be entitled to (1) actual damages caused by the violation of this act which shall include, but need not be limited to, actual trial verdicts that shall not exceed three times the applicable coverage amount; and (2) pre- and post-judgment interest, reasonable attorney’s fees, and reasonable litigation expenses.”
The statute itself does not state whether it is retroactive or prospective only. Again, it is likely to take a few years for this to be litigated at the appellate level.
There is no express statute of limitations in the statute, an issue that took nearly two decades to decide in Pennsylvania.
There had historically been no private right of action for violations of the Unfair Claims Settlement Practices Act. Section 3.a.(2) changes this under the IFCA, for uninsured and undersinsured motorist claims. While the preface to N.J.S.A. 17:29B-4 requires the presence of a general business practice to punish an insurer, that is not requred to bring a private action under the Insurance Fair Conduct Act.
Under IFCA section 3.b., “In any action filed pursuant to this act, the claimant shall not be required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.” This could imply that a one-off negligent act could subject an insurer to super-penalties; whereas the insurer commissioner could not impose punishment absent some sort of deliberate or reckless pattern of misconduct.
There is no standard or burden of prove set out for violations of the Unfair Claims Settlement Practices Act under the IFCA.
By comparison to Pennsylvania, or existing New Jersey common law, which requires knowledge or reckless indifference to an unreasonable coverage position, this New Jersey bad faith statute might be interpreted to be based on some level of negligence only, absent any bad faith. If so, as we said in 2018, it would be a misnomer to call this a bad faith statute. Rather it would amount to a codified negligence statute imposing heightened punishments that otherwise would be unavailable for negligent conduct.
N.J.S.A. 17:29B-4(9) provides:
(9) Unfair claim settlement practices. Committing or performing with such frequency as to indicate a general business practice any of the following:
(a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
(b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
(c) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
(d) Refusing to pay claims without conducting a reasonable investigation based upon all available information;
(e) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
(f) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
(g) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;
(h) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
(i) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;
(j) Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made;
(k) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
(l) Delaying the investigation or payment of claims by requiring an insured, claimant or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;
(m) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
(n) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;
(o) Requiring insureds or claimants to institute or prosecute complaints regarding motor vehicle violations in the municipal court as a condition of paying private passenger automobile insurance claims.