In a previous post, I discussed whether Hurricane Sandy victims were also the victims of bad faith claims handling by their insurance carriers. This post will discuss what constitutes bad faith here in New Jersey.

Many Hurricane Sandy victims are still waiting on their insurance carrier to processes and pay their claims. While delay can feel like bad faith on the part of the carrier, delay is only a component of what New Jersey Court’s consider when ruling on a bad faith claim. “[B]ad 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.”1 The Supreme Court held in Picket that, in order to avoid a bad faith claim, the insurance carrier’s actions must be “fairly debatable”2 The Picket court also found that unless the policyholder could succeed on a motion for summary judgment, a bad faith claim cannot succeed. Thus, New Jersey has reserved bad faith claims for the most clear cut cases of egregious conduct by insurance carriers.

Bad Faith is a common law remedy. New Jersey currently provides no private right of action under New Jersey’s Unfair Claims Settlement Practices Act.3 However, Senate Bill S-460, which creates a private right of action and would permit policyholders to recover damages, is currently pending in the New Jersey Senate. If passed, the new law would allow policyholders to recover:

a. the full amount of damages as set forth in the final judgment, regardless of the coverage limits of the policy;

b. prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses from the date of the institution of the action filed pursuant to this act. The prejudgment interest shall be calculated at the rate provided for tort actions, or for non-acceptance of a formal offer for judgment, whichever is higher, as prescribed in the Rules of Court; and

c. punitive damages, when the insurer’s acts or omissions demonstrate, by clear and convincing evidence, actual malice or wanton and willful disregard of any person who foreseeably might be harmed by the insurer’s acts or omissions.

The acts and omissions of many carriers in the wake of Hurricane Sandy show this is a much needed law here in New Jersey. I will monitor this bill’s progress through the Senate and Assembly and post updates when available.

1 Picket v. Lloyd’s, 131 N.J. 457, 481 (1993).
2 Id. at 473.
3 N.J.S.A. 17:29B-1 et seq., Pickets at 467.