A renewed effort is afoot to create a statutory cause of action against insurers who deny coverage in bad faith.
The “Consumer Protection Act,” S-2460, introduced this month, would establish a private cause of action for insureds or their assignees in connection with unfair claims-settlement practices — a right first articulated by the state Supreme Court in Rova Farms Resort Inc. v. Investors Ins. Co., 65 N.J. 474 (1974).
Currently, only state Department of Banking and Insurance regulators can take enforcement action under N.J.S.A. 17:29B-4(9), which prohibits, among other activities: compelling litigation for amounts due under the policy by offering substantially less than what’s 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.
Under S-2460, a private civil action could be brought under the statute’s aegis and would not hinge on whether the state has taken action, or whether the carrier’s violation occurs “with enough frequency as to indicate a general business practice.”
Successful plaintiffs would be entitled to prejudgment interest, attorney fees, litigation costs and full damages determined in final judgment, regardless of the policy limits.
They also could recover punitive damages by demonstrating, by clear and convincing evidence, actual malice or wanton and willful disregard.
S-2460 was introduced on Jan. 8; the Assembly version, A-3710, on Jan. 17.
A prior version, S-3036, introduced in 2011, would have required bad-faith actions to be heard by a judge rather than a jury. Its stated intention was to overturn the Supreme Court’s decision in Wood v. New Jersey Manufacturers Ins. Co., 206 N.J. 562, then two months old, which rejected the contention that bad-faith claims flow from the carrier’s fiduciary duty to the insured and thus are not actions at law meriting jury trial.
The unanimous Wood court said “a Rova Farms bad-faith case is a mundane and everyday contract claim to which the right to a jury trial attaches, no more no less,” a departure from the traditional practice of treating them as equitable matters.
The provision in S-3036 mandating bench trials thus raised concerns because of the state constitution’s guarantee of a jury trial in matters at law. For that reason, the provision was removed in S-2460, says Sen. Nicholas Scutari, who sponsored both versions. “We wanted to [introduce] something that gets some traction,” says Scutari, D-Union.
Scutari previously told the Law Journal he was considering a provision that instead would require that the same jury panel that heard the underlying action to also hear the bad-faith action. “I’m still thinking about it,” but any amendments to that effect will have to wait for committee, he says.
The legislation should generate more interest this time around because of allegations of insurer misconduct that cropped up in the wake of Superstorm Sandy last October.
“There’s going to be a humongous amount of litigation” connected to coverage of storm damage, Scutari says. “I really think there’s an opportunity. … People could actually see the benefits of a cause of action like this.”
Scutari has a GOP co-sponsor this time, Sen. Jennifer Beck, R-Monmouth.
It was referred to the Senate Commerce Committee, but no hearing is scheduled yet, says Scutari.
Scott Leonard, president of the New Jersey Association for Justice, the plaintiffs bar’s principal group, could not be reached.
Neither could Chuck Leitgeb, vice president and lobbyist for the Insurance Council of New Jersey.
Each organization argued an opposing position in Wood as amici.