Proposed NJ Bad Faith Statute Considered by Senate Commerce Committee on March 4th

On March 4, 2013, the New Jersey Senate Commerce Committee will consider S-2460, a bill that would codify the existing common law remedy for bad faith insurance practices in New Jersey. Named the Consumer Protection Act of 2012, the bill was introduced on January 8, 2013, and would apply to all claims filed on or after October 1, 2012. The proposed bill would allow insureds to file suit under the New Jersey Unfair Claims Settlement Practices Act (UCSPA). Currently, only the New Jersey Commissioner of Banking and Insurance can take action under the UCSPA, which permits suit when an insurer’s coverage liability is “reasonably clear.”

Supporters of the measure argue that the bill would help those affected by Hurricane Sandy by codifying existing case law governing bad faith insurance claims. They claim that the statute would provide an incentive for insurers to behave in a fair and equitable manner by codifying current case law and allowing insureds to file suit under the New Jersey UCSPA. Proponents also claim that the new standard for bad faith would not be much different from that established under existing case law.

Opponents of S-2460, such as the New Jersey Lawsuit Reform Alliance (NJLRA), have argued that the new legislation would yield higher insurance premiums for New Jersey homeowners and result in a flood of bad faith litigation. The NJLRA also notes that similar efforts over the last several years have been unsuccessful. Moreover, opponents claim that the “reasonably clear” standard creates a new cause of action that lowers the bar for bad faith claims. This change, they argue, will add uncertainty and increase costs by allowing insureds to recover attorney’s fees, court costs, and prejudgment interest. The NJLRA also argues that S-2460 would not serve to expedite post-Sandy insurance claims, but create a remedy for a minority of victims