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New Jersey has a well-earned reputation for being a state friendly to insurance policyholders. When it comes to bad faith claims against carriers, however, New Jersey has historically taken a moderate stance. That stance is illustrated by the Supreme Court’s decision in the 1993 case of Pickett v. Lloyd’s, 131 N.J. 457 (1993). In Pickett, the Court held, in connection with a first-party claim, that if the claim is “fairly debatable” then an action against the insurer for bad faith will not lie. The Pickett court also found that unless the policyholder could prevail on a motion for summary judgment, a bad faith claim cannot succeed. Moreover, where delay is the issue, “bad faith is established by showing that no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” (Emphasis added). Id at 481. That may be about to change. 

 In the wake of Hurricane Sandy’s devastation, and the avalanche of claims that it spawned, many insureds have charged that they have been further victimized by the failure of carriers to timely process and pay their claims. In response, the plaintiff’s bar, consumer advocates and others have looked for a weapon to use against recalcitrant or dilatory insurers. Enter pending Senate Bill S-2460, which creates a private right of action for policyholders to recover damages. (An identical bill, A-3710, has been introduced in the Assembly). It would enable policyholders to sue insurers for bad faith based upon a single alleged violation of the New Jersey Insurance Trade Practices Act, NJSA § 17:29B-1, et seq. That law catalogues a lengthy list of prohibited practices and acts, including failure to act reasonably promptly in response to claims, failure to affirm or deny coverage within a reasonable time after receipt of proof of loss, and failure to make good faith efforts to effectuate fair and equitable settlements where liability has become reasonably clear.

If enacted, the new law would allow policyholders to recover the full amount of damages memorialized by the judgment against the carrier, notwithstanding policy limits, as well as prejudgment interest, reasonable attorney’s fees, and reasonable litigation expenses. (Currently, in liability and indemnity policy disputes, prevailing policyholders can recover their costs and fees under New Jersey Court Rule 4:42-9(a)(6)).  Finally, policyholders could recover punitive damages, in cases of “actual malice or wanton and willful disregard of any person who foreseeably might be harmed by the insurer’s acts or omissions.”

Many who favor the bill characterize it as a codification of the case law represented by Pickett (with respect to first-party claims) and Rova Farms Resort Inc. v. Investors Ins. Co., 65 N.J. 474 (1974) (with respect to third-party claims). Opponents say it strays from the balanced approach taken by the courts and will drive up premiums for all policyholders. The progress of the bill bears watching.