Will Sandy Be the Straw that Causes the Creation of a Bad Faith Statute in New Jersey?

It is our belief that Superstorm (not Hurricane mind you) Sandy will be the cause of significant changes in bad faith law in New York and New Jersey.  It appears that our fear is well founded as post-Sandy bad faith legislation has been propounded in New Jersey.

Currently pending in the New Jersey Senate and New Jersey House are bills that would create a statutory cause of action against insurers who deny coverage in bad faith.  Under the proposed bills, a private cause of action would be created for violations of New Jersey’s Unfair Claims Settlement Practices Act.  Potential lawsuits could be based on a single example of: compelling litigation for amounts due under the policy by offering substantially less than what is ultimately recovered; failing to make a good-faith attempt to settle claims in which liability has been made reasonably clear; refusing payment without a reasonable investigation; misrepresenting facts or policy provisions; and failing to acknowledge or promptly respond to communications regarding claims.  Prejudgment interest, attorney fees, litigation costs, full damages determined in final judgment, regardless of the policy limits, and punitive damages could be recovered if a violation is proven.  If the bill becomes a law, this will be a significant departure from the current Rova Farms Resort Inc. v. Investors Ins. standard.  We will monitor the situation and keep you posted.

For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.