While Superstorm Sandy brought with it destructive winds and tidal surges, it also ushered in tides of change for New Jersey’s insurance market and regulatory scheme. Now that insurance company coverage decisions are starting to emerge, the New Jersey Unfair Claims Settlement Practices Act, codified as N.J.A.C. 11:2-17.1, et al., is in the spotlight.  The Act is currently only enforceable by the New Jersey Department of Banking and Insurance and action is typically only taken if a pattern of abuse is evident. Accordingly, individual insureds essentially have little to no recourse against insurance companies that overshoot the regulatory time frames for issuing coverage decisions and/or payments, or companies who make claim decisions without a proper investigation. A new bill, S2460, introduced in January 2013,  seeks to change that by giving insureds a private cause of action against their insurance companies for “bad faith.” 

 

The bill has been tabled for the time being while amendments are made.  The bill, as it stands now, would provide insureds with several benefits, including prejudgment interest, the right to recover the full amount of damages as set forth in a final judgment awarded to them regardless of the policy limits and in some cases, punitive damages.  Of particular importance, the bill would also provide for fee shifting which would entitle successful insureds to collect reimbursement for their legal fees and costs. Additionally, the bill would be effective retroactively to October 2012, to encompass all Sandy claims.  

 

Whereas the bill would include various types of insurance, federal flood policies will likely be excluded.  The National Flood Insurance Program is administered by FEMA and is governed by federal law.  Because S2460 would call for a change in State law, not Federal law, there would be no impact to flood policies.  However, for insureds who have sustained wind damage or other losses not covered by their property policies and have taken issue with the claims handling practices of their insurers post-Sandy, the bill would certainly provide them with important options. 

 

Bad faith claims in New Jersey, while not currently permitted by statute, are permitted by case law.  See Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474 (1974);  Pickett v Lloyd’s, 131 N.J. 457 (1993). However, the burden that an insured must meet is high and the success rate of these cases is limited.  S2460 would be a welcome change for policyholders by providing them with a fighting chance against insurers who are employing bad faith claims practices. We will continue to monitor the progress of this bill in the months ahead in the hope that it will be enacted with all of the proposed protections intact.