The New Jersey Insurance Fair Conduct Act

• Published date: 26 January 2022
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Lewis Brisbois Bisgaard & Smith LLP
• Author: Mr Kurt H. Dzugay, Colin P. Hackett and Afsha Noran

Newark, N.J. (January 25, 2022) - On January 18, 2022, New Jersey Governor Phil Murphy signed into law the New Jersey Insurance Fair Conduct Act (IFCA). Effective immediately, the IFCA creates a private cause of action for first-party claimants in part for 'an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy.' This new law is limited to uninsured and underinsured motorist (UM/UIM) coverage benefits under automobile insurance policies. As the new law became effective immediately upon its signing, it applies to all active and pending UM/UIM cases.

Under the statute, a 'first-party claimant' or 'claimant' is defined as an individual injured in a motor vehicle accident and entitled to the uninsured or underinsured motorist coverage of an insurance policy asserting an entitlement to benefits owed directly to or on behalf of an insured under that insurance policy.

Under the IFCA, a claimant can file a civil suit against their automobile insurer for:

1. an unreasonable delay of a claim for payment of benefits under an insurance policy or
2. an unreasonable denial of a claim for payment of benefits under an insurance policy; or
3. any violation of the provisions of section 4 of P.L.1947, c.379 (C.17:29B-4), also known as the New Jersey Unfair Claims Settlement Practices Act ('UCSPA'), N.J.S.A. ' 17:29B-4.

As a result, the IFCA now provides for a new private cause of action for 'unreasonable delay' or for 'unreasonable denial' of an insured's UM/UIM claim. The IFCA sets forth a statutory bad faith claim against an insurer. Prior to the enactment of this statute, New Jersey only recognized bad faith for UM/UIM claims under common law. It is unclear if, with the passage of this statute, any common law bad faith claims are expressly supplanted. However, given the broad reach of this statute, including the allowable damages, this statute provides greater relief to a potential successful claimant than under common law, meaning it will likely become a favorite of the plaintiffs' bar going forward.

The IFCA in its current form does not define the term 'unreasonable.' It fails to specify what conduct will meet this legal threshold. As a result, we foresee significant litigation as the courts seek to define this term in the statute. Nonetheless, we can also foresee that the courts would look to the common law bad faith standard under Pickett v. Lloyds, 131 N.J. 457 (1993) for guidance.

In Pickett, the New Jersey Supreme Court...