Gov. Phil Murphy signed S-1559 into law on Tuesday, which allows consumers to bring “bad-faith” lawsuits against insurers to recover certain damages and expenses.
Specifically, the new “bad faith” law—which goes into effect immediately—allows consumers to bring lawsuits against insurers for an unreasonable delay or unreasonable denial of a claim, for payment of benefits under an insurance policy. The law was amended in several small—but significant—ways before it was signed.
According to the law, those who are able to recover expenses are individuals who are injured in car accidents and who are entitled to the uninsured or underinsured motorist coverage of insurance policies—either directly or on behalf of insureds under the policies. Amendments to the bill, which were approved last month, allow for a claimant to recover up to three times the applicable policy limits. Additionally, claimants are permitted to recover expenses that include pre- and post- judgment interest, reasonable attorneys’ fees and reasonable litigation expenses. The latter of these recoverable expenses were included in the original legislation; they were removed in earlier amendments, but they were reinstated in the final version.
The effect on insurance carriers
The law also contains another new provision that impacts carriers. Under the law, carriers are prohibited from passing a rate increase onto consumers or policyholders if they comply with the law. It is unclear how this provision will be enforced, since it’s unlikely that carriers would be so blatant to file a rate increase and cite compliance with this bill as the reason.
How does this impact insurance producers?
It doesn’t. As a result of PIANJ’s advocacy, this law does not impact insurance producers. PIANJ worked with the sponsors of the bill specifically to exclude insurance producers from the bill. That change was made to an earlier version of the bad-faith legislation, and it remains in S-1559.
PIANJ’s advocacy for this amendment helps protect producers from being sued for actions over which they had no control. Due to the association’s success in gaining the important amendment, it has remained neutral about this bill—even though several insurance carriers have advocated against it.
PIANJ will continue to monitor the impact that this new law has on the insurance industry. For updates, watch your PIA Northeast publications.