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By: Megan P. Gable
On January 18, 2022 Governor Murphy signed into effect senate bill S1559, The New Jersey Insurance Fair Conduct Act (“IFCA”), instituting a private cause of action against insurance companies for possible extracontractual liability in the handling of claims made for uninsured or underinsured (“UM/UIM”) benefits on a motor vehicle policy. The new law is effective immediately. The legislation allows private citizens to bring suit against their insurance company for alleged “unreasonable” delay or denial of payments of claims made under a UM/UIM policy, or for alleged unfair claim settlement practices as defined by and in violation of N.J.S.A 17:29B-4, New Jersey Unfair Claims Practices Act (“UCPA”).
The legislation fails to define what constitutes “unreasonable delay” or “unreasonable denial,” creating a question of how those provisions will be enforced down the road. Alternatively, UCPA sets forth 15 separate defined acts which constitute “unfair settlement practices” including failing to communicate promptly with respect to claims, failing to implement reasonable standards for investigation, refusing claims without reasonable investigation, and not attempting to effect “prompt, fair and equitable settlements of claims in which liability has become clear.”
The provisions of UCPA were previously only enforceable by the commissioner of the New Jersey Department of Banking and Insurance on a finding that such violations happened with such regularity as to establish a “general business practice.” To the contrary, the new legislation explicitly vacates any requirement on the individual to prove that violations amounted to a general business practice to prevail on their claim under the IFCA. Violations of the new law afford the possibility of penalties and could allow a successful claimant to collect on a verdict up to three times his policy limits along with attorneys’ fees and costs of litigation.
Despite this, the open-ended language of the Act gives little guidance for what carriers can or should do to avoid extracontractual claims, and how these cases will evolve is unknown.